[Senate Hearing 112-168]
[From the U.S. Government Publishing Office]
S. Hrg. 112-168
THE POWER OF GOOGLE: SERVING CONSUMERS OR THREATENING COMPETITION?
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HEARING
before the
SUBCOMMITTEE ON ANTITRUST,
COMPETITION POLICY AND CONSUMER RIGHTS
of the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 21, 2011
__________
Serial No. J-112-43
__________
Printed for the use of the Committee on the Judiciary
U.S. GOVERNMENT PRINTING OFFICE
71-471 WASHINGTON : 2011
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COMMITTEE ON THE JUDICIARY
PATRICK J. LEAHY, Vermont, Chairman
HERB KOHL, Wisconsin CHUCK GRASSLEY, Iowa
DIANNE FEINSTEIN, California ORRIN G. HATCH, Utah
CHUCK SCHUMER, New York JON KYL, Arizona
DICK DURBIN, Illinois JEFF SESSIONS, Alabama
SHELDON WHITEHOUSE, Rhode Island LINDSEY GRAHAM, South Carolina
AMY KLOBUCHAR, Minnesota JOHN CORNYN, Texas
AL FRANKEN, Minnesota MICHAEL S. LEE, Utah
CHRISTOPHER A. COONS, Delaware TOM COBURN, Oklahoma
RICHARD BLUMENTHAL, Connecticut
Bruce A. Cohen, Chief Counsel and Staff Director
Kolan Davis, Republican Chief Counsel and Staff Director
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Subcommittee on Antitrust, Competition Policy and Consumer Rights
HERB KOHL, Wisconsin, Chairman
CHUCK SCHUMER, New York MICHAEL S. LEE, Utah
AMY KLOBUCHAR, Minnesota CHUCK GRASSLEY, Iowa
AL FRANKEN, Minnesota JOHN CORNYN, Texas
RICHARD BLUMENTHAL, Connecticut
Caroline Holland, Democratic Chief Counsel/Staff Director
David Barlow, Republican General Counsel
C O N T E N T S
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STATEMENTS OF COMMITTEE MEMBERS
Page
Feinstein, Hon. Dianne, a U.S. Senator from the State of
California..................................................... 5
Grassley, Hon. Charles, a U.S. Senator from the State of Iowa,
prepared statement............................................. 20
Kohl, Herb, a U.S. Senator from the State of Wisconsin........... 1
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont,
prepared statement............................................. 217
Lee, Hon. Michael S., a U.S. Senator from the State of Utah...... 3
charts....................................................... 219
WITNESSES
Barnett, Thomas O., Partner, Covington & Burling, LLP,
Washington, DC................................................. 33
Creighton, Susan A., Partner, Wilson Sonsini Goodrich & Rosati,
PC, Washington, DC............................................. 38
Katz, Jeff, Chief Executive Officer, Nextag, Inc., San Mateo,
California..................................................... 35
Schmidt, Eric, Executive Chairman, Google Inc., Mountain View,
California..................................................... 6
Stoppelman, Jeremy, Co-founder and Chief Executive Officer, Yelp,
Inc., San Francisco, California................................ 36
QUESTIONS AND ANSWERS
Responses of Thomas O. Barnett to questions submitted by Senators
Grassley, Kohl and Lee......................................... 53
Responses of Susan A. Creighton to questions submitted by
Senators Grassley and Kohl..................................... 65
Responses of Jeff Katz to questions submitted by Senators
Grassley, Kohl and Lee......................................... 84
Responses of Eric Schmidt to questions submitted by Senators
Blumenthal, Cornyn, Franken, Grassley, Kohl and Lee............ 102
Responses of Jeremy Stoppelman to questions submitted by Senators
Kohl, Grassley and Lee......................................... 170
SUBMISSIONS FOR THE RECORD
Alschuler, John, Chair, Friends of the High Line, New York, New
York, September 14, 2011, letter............................... 178
Barnett, Thomas O., Partner, Covington & Burling, LLP,
Washington, DC, statement...................................... 180
Camara, Karim, New York State Assembly, 43rd District, Kings
County, Albany, New York, July 26, 2011, letter................ 195
Chiames, Chris, Vice President, Corporate Affairs, Orbitz
Worldwide, Chicago, Illinois, statement........................ 196
Creighton, Susan A., Partner, Wilson Sonsini Goodrich & Rosati,
PC, Washington, DC, statement.................................. 198
Cumbo, Laurie A., MoCADA Founder & Executive Director, Brooklyn,
New York, September 8, 2011, letter............................ 209
Heastie, Carl, New York State Assembly, 83rd District, Bronx
County, Albany, New York, August 15, 2011, letter.............. 213
Katz, Jeff, Chief Executive Officer, Nextag, Inc., San Mateo,
California, statement.......................................... 214
New York Post, Garett Sloane, New York, New York, February 25,
2011, article.................................................. 223
New York Times, Jonathan Vatner, New York, New York, April 19,
2011, article.................................................. 225
Rice, Arva R., President & CEO, New York Urban League, New York,
New York, August 16, 2011, letter.............................. 228
Rudin, William C., Chairman, Abny, New York, New York, July 26,
2011, letter................................................... 230
Sampson, John, New York State Senate, Albany, New York, July 27,
2011, letter................................................... 231
Schmidt, Eric, Executive Chairman, Google Inc., Mountain View,
California, statement.......................................... 232
Simpson, John M., Consumer Advocate, Consumer Watchdog, Santa
Monica, California, statement.................................. 240
Stoppelman, Jeremy, Co-founder and Chief Executive Officer, Yelp,
Inc., San Francisco, California, statement..................... 247
Terry, Angela, Therapy Wine Bar, Brooklyn, New York, August 5,
2011, letter................................................... 274
Titus, Michele, New York State Assembly 31st District, Queens
County, Albany, New York, July 20, 2011, letter................ 276
Tosney, Jason, Vice President, Centro, Chicago, Illinois, letter. 278
Wilshire, Albert, President Board Trustees, Brooklyn Music
School, Brooklyn, New York, August 20, 2011, letter............ 280
Wright, Keith L.T., New York State Assembly 70th District, New
York County, New York, New York, July 21, 2011, letter......... 281
Zaccaria, Gary, Salt Lake City, Utah, September 13, 2011, letter. 283
Zuckerman, Bob, Executive Director, New York, New York, August
18, 2011, letter............................................... 295
THE POWER OF GOOGLE: SERVING CONSUMERS OR THREATENING COMPETITION?
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WEDNESDAY, SEPTEMBER 21, 2011
U.S. Senate,
Subcommittee on Antitrust, Competition Policy
and Consumer Rights,
Committee on the Judiciary,
Washington, DC
The Committee met, pursuant to notice, at 2 p.m., Room SD-
226, Dirksen Senate Office Building, Hon. Herb Kohl, Chairman
of the subcommittee, presiding.
Present: Senators Feinstein, Schumer, Klobuchar, Franken,
Blumenthal, Grassley, Cornyn, and Lee.
OPENING STATEMENT OF HON. HERB KOHL, A U.S. SENATOR FROM THE
STATE OF WISCONSIN
Senator Kohl. Good afternoon. Today this Subcommittee meets
to consider an issue that affects everyone who searches or does
business over the internet--in other words, almost everybody.
We will examine how the world's dominant internet search
engine, namely Google, presents its search results to consumers
and treats the businesses it competes with.
Our inquiry centers on whether Google biases these results
in its favor, as its critics charge, or whether Google simply
does its best to present results in a manner which best serves
its consumers, as it claims.
At the outset, I wish to stress that I come to this hearing
with an entirely open mind, without any prejudgment of these
issues. My goal is to provide both Google and its critics with
a forum to air their views. In examining these issues, we
recognize the incredible technological achievements of Google
and the need to avoid stifling its creative energy.
At the same time, we need to be mindful of the hundreds of
thousands of businesses that depend on Google to grow and
prosper. We also need to recognize that as a dominant firm in
internet search, Google has special obligations under antitrust
law not to deploy its market power to squelch competition.
There can be no question of the astounding achievements of
Google's search engine. Through the magic of its search
technology, Google, a company literally started in a garage by
two Stanford students less than 15 years ago, has done nothing
less than organize all the billions of internet web pages into
an easily accessible listing on the computer screen.
Sixty-five to 70 percent of all U.S. internet searches on
computers and 95 percent on mobile devices are done on Google's
search engine. Millions of people every day run Google searches
to find out the answer to nearly every question imaginable,
including for the best and cheapest products and services, from
electronics, to clothing, to hotels, to restaurants, to give
just a few examples.
And businesses equally rely on Google to find customers.
The search premise of Google at its founding was that it would
build an unbiased search engine that consumers would see the
most relevant search result first, and that the search results
would not be influenced by the web page's commercial
relationship with Google.
Its goal was to get the user off Google's home page and
onto the website it lists as soon as possible. As Google's co-
founder and current CEO Larry Page said in 2004, ``We want you
to come to Google and quickly find what you want, then we're
happy to send you to the other sites. In fact, that's the
point.'' However, as internet searches become a major channel
of e-commerce, Google has grown ever more dominant and powerful
and it appears its mission may have changed.
In the last 5 years or so, Google has been on an
acquisition binge, acquiring dozens of internet-related
businesses, culminating most recently with its proposed
acquisitions of Motorola Mobility and Zagat's. It now owns
numerous internet businesses, including in health, finance,
travel, and product comparison.
This has transformed Google from a mere search engine into
a major internet conglomerate, and these acquisitions raise a
very fundamental question: is it possible for Google to be both
an unbiased search engine and at the same time own a vast
portfolio of web-based products and services? Does Google's
transformation create an inherent conflict of interest which
threatens to stifle competition?
In the last few years, internet businesses that compete
with Google's new products and services have complained that
Google is now behaving in a way contrary to free and fair
competition. They allege that Google is trying to leverage its
dominance in internet search into key areas of internet
commerce, where it stands to capture from its competitors
billions of dollars in advertising revenue.
Rather than fairly presenting search results, these critics
claim that Google has begun to suddenly bias its search results
in favor of its own services. This conduct has the potential to
substantially harm competition for commerce on the internet and
retard innovation by companies that fear the market power of
Google.
Antitrust scrutiny is not about picking winners and losers,
but it is about fostering a fully competitive environment so
that consumers can fairly pick winners and losers. As more and
more of our commerce moves to the internet, it should be the
highest priority of antitrust policymakers that the internet
remain a bastion of open and free competition, as it has been
since its founding.
We need to protect the ability of the next Google to
emerge, the next great website or application being developed
in a garage in Silicon Valley or in Madison, Wisconsin.
Senator Lee, we would like to hear what you have to say.
STATEMENT OF HON. MIKE LEE, A U.S. SENATOR FROM THE STATE OF
UTAH
Senator Lee. Thank you, Mr. Chairman.
Internet search is critical to economic growth in the
United States and Google has long been a dominant force in this
arena. Indeed, Americans Google so frequently and ubiquitously
that the company's name has become a generic verb that means
``to search the internet.'' In the United States, Google
controls somewhere between 65 and 70 percent of the general
internet search arena and more than 75 percent of paid search
advertising, and 95 percent of mobile search.
Given its dominant position, most internet-based businesses
rely on Google for a substantial share of their traffic in
revenues. As a result, last year Google generated nearly $30
billion in search advertising revenues. Studies show what most
of us know from experience, that the first few Google search
results attract nearly 90 percent of all user clicks. Google's
search ranking, therefore, has enormous power over the
information users find, which websites receive traffic, and the
amount businesses must pay to be found on the internet.
A former Reagan administration antitrust chief recently
suggested that this market power has essentially made Google
``a monopoly gatekeeper to the internet.'' Whether or not
Google formally qualifies as a monopoly under our antitrust
laws, one thing is clear: given its significant ability to
steer e-commerce and the flow of online information, Google is
in a position to help determine who will succeed and who will
fail on the internet. In the words of the head of Google's
Search Ranking team, Google is ``the biggest king-maker on
earth.''
Google has used its substantial advertising revenues to
branch out into a multitude of secondary internet businesses,
largely by acquiring more than 100 different companies. Google
now offers YouTube video, Gmail, Chrome internet browser,
Google-Plus social networking, the Android mobile Smart Phone
operating system, and a host of services, including Google
Maps, News, Books, Shopping, Places, and Flight Search.
With its recent purchase of Motorola Mobility, Google is
now poised to get into the business of mobile handset
manufacturing. With Google's expansion into so many areas, a
large number of businesses, advertisers, and consumer groups
have raised concerns regarding Google's activities, suggesting
the company may be acting in deceptive and anti-competitive
ways. As a result, Google is under investigation by antitrust
authorities, both in the United States and abroad. This
Subcommittee has oversight of antitrust enforcement and
competition policy, and I appreciate Chairman Kohl's leadership
in calling a hearing to address this important topic.
From its inception, Google's stated goal was to have users
leave its website as quickly as possible, but over time the
company appears to have changed its approach, to steer users
not to other businesses and sources of information, but to its
own complement of competing services.
Google has worked hard to cultivate the public perception
that its searches are comprehensive and unbiased, but there is
growing concern that Google employs different search ranking
algorithms and more attractive visual displays to advantage its
own secondary sites and products, to the detriment of competing
specialized search sites and to other disadvantaged businesses.
There is also evidence that Google has taken information
and reviews from competing specialized search sites like Yelp
and Trip Advisor, used that data as part of its own services,
and in the process demoted the search result rankings of the
sites from which Google acquired that information.
In addition, some reports suggest that Google has taken
steps to impede competing search engines from crawling,
indexing, and returning search results to its YouTube content
and book scans. Access to these popular stores of content is
crucial and critical to enabling other search engines to
compete.
There are also allegations that Google has achieved and
sought to maintain its dominance in search by imposing
exclusivity restrictions and dealings with advertising
partners, perhaps in an effort to block competing search tools.
This includes a broad array and a broad network of exclusive
search syndication deals with websites like AOL and Ebay,
exclusive arrangements for Google's search box to appear on
browsers like Mozilla Firefox and Safari, and agreements that
Google be the exclusive default search provider on the I-Phone
and on many Android models.
Similarly, Google's contracts with advertisers apparently
impose limits on the advertiser's ability to transfer data
associated with Google's advertising platform to any other
advertising platform using third party tools that would make
the process simple, or even automatic.
Studies by a Harvard Business School professor concluded
that the net effect of these restrictions is to reinforce the
tendency of small-to medium-sized advertisers to use only
Google Ad Words to the exclusion of competing platforms. Many
observers are also concerned that Google may be seeking to
prevent Smart Phone manufacturers and customers who wish to use
the Android platform from using competitors' services, for
example, by tying Android to Google's location program in order
to exclude competing geo-location services.
In assessing each of these concerns, the primary focus of
our antitrust analysis should be consumer welfare. Growing
complaints that Google is using its search dominance to favor
its own offerings at the expense of competition deserves
serious attention, especially if consumers are misled by
Google's self-rankings and preferential display.
Such bias would deny user traffic and revenue to competing
sites, depriving those sites of resources needed to develop
more innovative content and offer better services to customers.
When competing websites lose traffic, they are forced to
increase their paid search advertising on Google, ultimately
leading to increased prices for consumers.
As a conservative Republican who favors free markets, I
believe that ensuring robust competition in this critical area
of our Nation's economy will benefit consumers, it will spur
innovation, and it will lead to job creation. In this instance
I believe that preserving competitive markets through antitrust
principles can help forestall the imposition of burdensome
government regulation.
Thank you, Mr. Chairman.
Senator Kohl. Thank you, Senator Lee.
I would like, now, to introduce our first witness who will
be Mr. Eric Schmidt. Mr. Schmidt has served as the executive
Chairman of Google since April of this year, and from 2001 to
2011 was the chief executive officer of the company.
We will introduce our second panel before they testify, but
I would now turn to Senator Feinstein who would like to make
remarks in order to introduce our witnesses from California.
Senator Feinstein.
STATEMENT OF HON. DIANNE FEINSTEIN, A U.S. SENATOR FROM THE
STATE OF CALIFORNIA
Senator Feinstein. Thank you very much, Mr. Chairman. I
really appreciate this very special privilege.
The three gentlemen you are going to hear from today come
right from the heart of the San Francisco Bay area. I have
known the Chairman of Google for many years. I have always
known him as a forthright man, filled with integrity. He has a
long history in Silicon Valley, and at the helm of a number of
America's most innovative companies. He has been with Google
since 2001.
He has helped Google grow from less than 1,000 employees to
28,000, 13,000 of whom are in California. That is a 45 percent
growth in employment, even in the most difficult times of the
past 2 years, with 5,000 new hires in California in about that
same time. Under his leadership, Google has been helping
business throughout the Golden State, last year alone providing
$15 billion in economic activity to nearly 300,000 small
businesses, publishers, and nonprofits.
Mr. Jeff Katz, the CEO of Nextag, is from San Francisco.
This is a price comparison website company in San Mateo that
allows people to search for products and see lists of available
online prices for those products. Mr. Katz has extensive
experience in the internet and travel industries, having held a
variety of positions at American Airlines, serving as president
and CEO of Swiss Air, being the Chairman and founding CEO of
the well-known travel website Orbitz, and serving as president
and CEO of Leapfrog Enterprises, a maker of technology-based
learning products, among other endeavors. He holds a master of
Science degree from my alma mater, Stanford, among other
degrees.
Finally, Jeremy Stoppelman, co-founder and chief executive
officer of Yelp. Joining Mr. Katz on the second panel will be
Jeremy Stoppelman. He is co-founder and CEO of a small,
innovative company from San Francisco whose website allows
people to search for local businesses or types of businesses
and find profiles of the businesses in its results, including
customer reviews and rankings, photographs, and other similar
businesses. He worked as the vice president of engineering at
PayPal before dropping out of Harvard Business School to co-
found Yelp with Russell Simmons.
As you can see, Mr. Chairman, you have three very well-
qualified Bay area citizens. I hope they tango rather than
tangle. Thank you very much for this.
Senator Kohl. Thank you very much, Senator Feinstein.
We again thank all witnesses who are appearing here today.
I would like you all now to rise and step forward and raise
your right hand and take the oath as I administer it.
[Whereupon, the witnesses were duly sworn.]
Senator Kohl. Thank you all.
Mr. Schmidt, we would love to hear what you have to say.
STATEMENT OF ERIC SCHMIDT, EXECUTIVE CHAIRMAN, GOOGLE, INC.,
MOUNTAIN VIEW, CALIFORNIA
Mr. Schmidt. Well, good afternoon, Chairman Kohl, Ranking
Member Lee, and members of the subcommittee. Thank you for
inviting me here today.
I want to start, first, by taking a step back. Twenty years
ago, a large technology firm was setting the world on fire. Its
software was on nearly every computer, and its name was
synonymous with innovation, but that company lost sight of what
mattered and Washington stepped in. I was an executive at Sun,
and later at Novell, at the time.
In the years since, many of us in Silicon Valley have
absorbed the lessons of that era. So I am here today carrying a
long history in the technology business--thank you, Senator--
and a very short message about our company: we get it. By that
I mean we get the lessons of our corporate predecessors. We
also get that it's natural for you to have questions about our
business, and that's certainly fine.
What we ask is that you help us ensure that the Federal
Trade Commission's inquiry remains a focused and fair process,
which I'm sure you'll do, and that we can continue to create
jobs and building products that delight our users.
So before I talk about our perspective on the state of
technology in general, I would like to start by explaining how
we think about our own business and a few of the principles
that guide the decisions, which I am sure you will want to talk
about.
First, always put consumers first. Last year alone we made
more than 500 changes to improve search. It is not an easy
task. Our challenge is to return the most relevant answers
first. This means that not every website can come on top, it is
a ranking problem. And there are definitely complaints from
businesses who want to be first in rankings even when they are
not the best match, as best we can tell for a user search.
Second, focus on loyalty, not lock-in. We do not trap our
users. If you do not like the answer that Google search
provides you can switch to another engine with literally one
click, and we have lots of evidence that people do this. If you
want to leave other Google services, we make it easy for you to
do so. You can even take your data with you without any hassle.
We want consumers to stay with us because we are innovating and
making our products better, not because they are locked in.
Third, be open, not closed. Open technology includes both
open source, meaning that we release and actively support code
that helps grow the internet, and open standards, meaning that
we adhere to accepted standards and, if none exist, we work to
create the standards that can improve the entire internet.
Fourth, be transparent. We share more information about how
our search engine and other products work than any of our
competitors and we give advertisers detailed information about
their performance and return on investment.
Finally, the only constant is change. Ten years ago, no one
would have guessed--certainly I, and I do not think anybody
else--that the vocabulary in economics would look like it does
today. No one knows what it will look like in 1 year, or 5
years. So despite what others say about the American economy, I
think our future in America is very bright. There is no doubt
that we're facing difficult times. There has never been a more
exciting time to be part of a technology business, as I think
you will see from all of the companies represented this
afternoon.
While others have given up on the American economy, Google
is certainly doubling down. We are investing in people. In 2002
we had fewer than 1,000 employees, and again, now we have more
than 24,000 and we are hiring. Earlier this year we announced
that 2011 would be our biggest hiring year yet, and we are
clearly on target to meet, or even beat, that.
We are investing in mobile, as was earlier suggested. Just
look at our plans to acquire a great American company, Motorola
Mobility. We believe that our proposed acquisition of Motorola,
like many previous moves that we have made, is good for
competition, innovation, and the American economy. It is a big
bet, but we are confident that this acquisition will lead to
growth and innovation in mobile technology, which is what we
care about.
We are also investing in local. Ninety-seven percent of the
people look online for local goods and services, but only 63
percent of--actually, 63 percent of America's small businesses
do not have a website at all. This is a missed opportunity, in
my view. So we started an initiative to help small businesses
get online. We've partnered with Intuit and others to offer
local businesses, et cetera.
Last year alone, Google search and advertising tools
provided $64 billion in economic activity to other companies,
publishers, and nonprofits in the United States, and we are
very, very proud of this. Of course, this year will be even
greater.
So without exaggeration, high-tech is the most dynamic part
of the U.S. economy. Advertising-supported internet alone is
3.1 million jobs, according to the study I just read, and
according to McKenzie, the internet was responsible for 15
percent of America's GDP growth in the last 5 years.
The internet is also home to some of America's most
successful companies--Amazon, Apple, Facebook, and Google. We
compete hard against each other and we welcome that
competition. It makes us better and it makes our competitors
better, too. But most importantly it means better products for
our users.
So today it's Google's turn in the spotlight and we respect
the rule that you all have, and the agency, of course, in this
process. I do ask you to remember that not all companies are
cut from the same cloth and that one company's past need not be
another's future. We live in a different world today and the
open internet is the ultimate level playing field.
So if you keep that in mind, then we believe that the
Federal Trade Commission's inquiry will reveal an enthusiastic
company filled with people who believe that we have only
scratched the surface of what's possible. That passion to do
better will not only serve our users well, but it will serve
our Nation well by helping create new jobs and economic growth
that our wonderful country needs.
So, thank you very much for your time and for this hearing.
[The prepared statement of Mr. Schmidt appears as a
submission for the record.]
Senator Kohl. Thank you very much, Mr. Schmidt. We
appreciate what you just had to say. Now we will begin our
inquiries of you individually. We will ask questions for a
maximum of 7 minutes.
Mr. Schmidt, many industry experts believe that the central
mission of Google has fundamentally changed since its founding.
At the outset, Google's goal, according to CEO Larry Page, in
2004, was to get consumers off Google's page ``and send you to
the other sites.'' Since that time Google has acquired or
expanded into internet businesses in many diverse areas,
including travel, videos, and shopping. Now we hear you say you
want to provide consumers answers to questions, not merely
links to websites that provide those answers.
What do you say to those who argue that there is a
fundamental conflict of interest between only providing
unbiased web links and now providing answers, when you own many
of the services providing the answers? As a rational business
trying to make the most profit, would we not expect Google to
favor its products and services in providing these answers?
Mr. Schmidt. I am not sure Google is a rational business
trying to maximize its own profits, Senator. As we addressed in
our founding of our--the IPO letter, in the founder's letter.
Google is run under a set of principles that are really quite
profound within the company. One of the most important
principles is, solve the problem that the consumer has. So 10
years ago, the best answer may have been the 10 links that we
saw, but the best answer today may be that we can
algorithmically compute an answer and do it quicker. Think of
it as if you are looking for an answer, you want the answer
quickly, and speed matters, especially at the scale that we are
at. So if we can calculate an answer more quickly, that's an
improvement for the end user.
Senator Kohl. I appreciate your response, but in a large--
in measure, it's another way of saying, trust us, that we are
going to do, and we do do, and we will do ``the right thing.''
Is merely trusting Google to do the right thing really
sufficient, given your clear business incentives to maximize
the value of your company? Shouldn't we be guided by the words
of a great president, Ronald Reagan, who said, ``Trust yes, but
verify'' ?
Mr. Schmidt. Well, in fact, I completely agree with ``trust
but verify'' and I hope that this is in the process that we're
going through right now. The ultimate correction against any
mistakes that Google makes is how consumers behave. We live in
great fear every day that consumers will switch extraordinarily
quickly to other services. One of the consequences of the open
internet is that people have choices that they did not have in
previous generations.
In every case, the site that was--is now lower ranked is
still available if you just type their name into your browser
and off you go. In all cases, what we're trying to do is, we're
saying that our customers want quick and accurate answers and,
if you will, the guide or the way we correct ourselves is if
they switch. We know that people like what we do because we
have an extraordinarily extensive testing regime.
It may be worth just describing briefly that we have some
number of thousands of engineers who work on search. We think
they're the best in the world and we're very proud of them, and
they mathematically compute, with more than 200 signals, a
whole bunch of insights of how to rank things. It's one of the
hardest problems known in science because of the scale of the
internet.
And because we do it so well, we think we have earned that
position that you were describing, but nevertheless, what
happens is that when we do that we actually get down to doing 1
percent testing, so that what happens is we actually know, we
do side-by-side tests to know that our--that we are producing
what customers want.
Senator Kohl. During a conference in 2007, Marissa Meyer,
one of Google's top executives, discussed how Google placed its
own products and services on its search results page. Speaking
of the Google Finance service, she said that in the past Google
ranked links ``based on popularity. But when we rolled out
Google Finance, we did put the Google link first. It seems only
fair, isn't that right? We do all the work for the research
page and all these other things, so we do it--put it first.
That has actually been our policy since then.''
This is your employee. ``So for Google Maps, again, it is
the first link, so on and so forth. After that it's ranked
usually by popularity.'' So when she made that comment back in
2007 she was speaking, in her mind, accurately. How do you
measure what she said then and what you are telling us now?
Mr. Schmidt. Well, again, I was not there, so maybe I
should use my own voice on this question. There's a category of
queries which are not well-served by the 10 links answer. You
mentioned in Marissa's quote Maps. When people want a map, they
actually want a map right then and there. So over a 6- or 7-
year period, we not only acquired a set of companies but have
also invested hundreds and hundreds of millions of dollars in
producing what we think are technologically and, from an
experience perspective, the best mapping products around.
We surfaced those because all of our testing, plus our own
intuition, is that when somebody types in an address they
actually want to have a map and we show it to them very
quickly. It would be very difficult to do that with the 10
links model. So again, if we were forced to stay within the 10
links model, we would not be able to do that kind of
innovation. Furthermore, I should mention that all of our
competitors have similar approaches and similar products to the
Maps places, and other things.
Senator Kohl. Let me just say once again, she said, ``When
we rolled out Google Finance we did put the Google link first.
It seems only fair. We do all the work for the search page and
all the other things, so we do put it first.'' Now, you
recognize, of course, if that's company policy, that's very
contrary to what you're telling us here today.
Mr. Schmidt. Well, again, I can speak for the policy of the
company during my tenure, and I represent it as I implemented
it and understood it. In our case we implemented it the way I
described it. I'll let Marissa speak for herself on her quote.
If you take a look at Google Finance, we started off by
presenting Google links, as you described, and then we decided
that it would be better to have a simple, quick ``stock
quote,'' if you will, tool and we licensed that technology from
the Nasdaq, the NYSE, and others, and that's the source of her
answer. So again, we moved from the standard 10 links answer to
this, what we call a simple answer.
And then what happened after that, of course, is right
below it you see all of the top engines. If you do the query
today, not only will you see that we show all of the other
competitors, and ideas, and great sources of information--about
information, but we also have hot links, as they're called,
right below our answers, including, for example, Yahoo Finance,
which is probably the most popular of them.
Senator Kohl. But to be listed first is an advantage, isn't
it?
Mr. Schmidt. In this particular we don't actually list
anybody first. We have an insertion which summarizes the
answer, and typically the Yahoo answer comes right after our
answer. It's easier if I describe it. If you want a stock
quote, we'll just give you the stock quote, and then right
after that we'll show you links to, for example, Yahoo Finance
and the others--the others right there. So I disagree with the
characterization that somehow we were discriminating against
the others.
Senator Kohl. Thank you very much.
Mr. Lee.
Senator Lee. Thank you, Mr. Chairman. And thank you, Mr.
Schmidt, for being with us.
Let me get right to the point of one of my concerns. Are
Google products and services offered by Google subject to the
same search ranking algorithmic process as all other organic
search results?
Mr. Schmidt. They are--they are when they're actually in
ranking in the answers that you're describing, but I think the
core question that both of you addressed in your opening
statements was this question of where we synthesize or we come
up with an answer to a question. So again, I want to just
repeat that if we know the answer, it is better for the
consumer for us to answer that question so that they don't have
to click anywhere, and in that sense we tend to use data
sources that are our own because we can't engineer it any other
way.
Senator Lee. OK. OK.
But I'm really not asking whether you're giving the right
information, whether you're giving information that is--you
know, that you regard as most helpful to the customer. I'm
asking whether your own secondary services, services that
Google itself offers, are they subject to the same test, to the
same standard as all the other results of an organic
algorithmic search?
Mr. Schmidt. I believe so. As I understand your question, I
believe the answer is yes. I'm not aware of any unnecessary or
strange boosts or biases. So, for example, you'll see
everything is intermixed in a way that often competitors' links
are in along with, for example, YouTube.
Senator Lee. OK.
I'd like to show a visual aid. Let's bring up the first
slide if we can, Mike. This is a chart that reflects the
results of a study comparing the search rankings of three
popular price comparison sites and those of Google Shopping.
Now, the three popular price comparison sites' results are
depicted in various shades of green, and the Google results are
depicted in red.
These particular data points were gathered in April of this
year and they represent the ranking results from 650 shopping-
related key word searches. While Nextag, Price Grabber, and
Shopper all show significant variation, ranking first for some
and near 50th for others, Google has a very consistent rate of
success. Google Shopping ranked 3rd in virtually every single
instance.
So to be clear, your testimony a moment ago was that these
Google Shopping rankings almost exclusively in the third spot
are in fact the result of the same algorithm as the rankings
for the other comparison sites?
Mr. Schmidt. There's a conflation of two different things
going on in this study, which I've not seen so I shouldn't
comment beyond that. There's a difference between sites that do
product comparison and sites that offer products themselves.
Google Products search is about getting you to a product,
and so we tend to look for the product as opposed to the
product comparison in this particular case, which is why the
product is more highly ranked than the result of a product
comparison site. If you did the same study with all of the
other product sites, you would find a very different result.
Senator Lee. OK. OK.
So if we called this a product search, if we called the
result a Google product result, that is not subject to the same
algorithmic search input that brings about the other organic
algorithmic search results?
Mr. Schmidt. Again, I'm--I'm--I'm sorry I may have confused
you, and I apologize. We do product search ranking. Things
like--the companies that are mentioned that are price
comparison shopping. They're different animals, if you will.
They do different--they're important, they do different things.
Google Products search is about searching for specific
products. In that sense, products search does something similar
to what Price Grabber, Nextag, and Shopper do, which is why the
confusion exists. It's not a--it's not a--it's an apples-to-
oranges comparison.
Senator Lee. Why is it that they're always 3rd? I mean, it
seems to me that this is an uncanny----
Mr. Schmidt. Well, again, I----
Senator Lee [continuing]. Statistical coincidence, if we
can call it that. Third every single time. I mean, there are a
few outliers where you're 1st, or you're 3rd, or where you're
4th. You're also, interestingly enough, occasionally 11th.
You're never 12th. You're certainly never 50th or anything
close to it. And yet, every one of those others will find
themselves everywhere along this spectrum, everywhere. You're
always 3rd--almost every time. How do you explain that?
Mr. Schmidt. Well, again, I'd have to look at--at the
specific results because we ranked----
Senator Lee. Well, we've got the results right here. Just
look at----
Mr. Schmidt. No, I'd need to see--I'd actually need to see
the technical details to give you a direct answer. But in
general, what's happening here is you're having product
coparison sites and their results are being compared against
Google answers, which are products, and the two cannot be
properly compared. That's why I think you're seeing such a
strange result.
Senator Lee. OK. OK.
It seems to me, for whatever it's worth, when I see this,
when I see you magically coming up 3rd every time, that seems
to me that--I don't know whether you call this a separate
algorithm or whether you have reverse-engineered one algorithm,
but either way you've cooked it so that you're always 3rd.
Mr. Schmidt. Senator----
Senator Lee. Let's move on to the next slide.
Mr. Schmidt. Senator, may I--may I simply say that I can
assure you we've not cooked anything.
Senator Lee. Well, OK. You have an uncanny ability and an
uncanny natural attraction to the No. 3 in that instance.
[Laughter.]
Senator Lee. Let's look at this search result. This one is
the product of a search query. Here it's a search query for a
particular camera model when we bring up a Google Product
listing. Now, it's near the middle of the search screen result.
You know from your research that the middle of the first screen
is the area where users are most likely to focus. That's the
prime real estate online, correct?
Mr. Schmidt. Actually, clicks go from the top to the
bottom.
Senator Lee. OK.
Mr. Schmidt. So----
Senator Lee. But you want to be at or near the top of the
list. That's----
Mr. Schmidt. In general you want to be on the first page
and among the first entries.
Senator Lee. OK.
Mr. Schmidt. Yes, that's correct.
Senator Lee. Now, among the natural search results the
Google listing, the Google Products listing is the only result
that includes the photo. We've highlighted it here in blue just
to demonstrate here that it's different, but there's nothing
online that actually differentiates it as necessarily a Google
listing. There's nothing that indicates that this is an
advertisement, that it's even Google, and it's also the most
prominent given its placement.
Mr. Schmidt. So--so again, that's not an ad. That is an
organic search result which is triggered by a product search
data base which we have gathered by searching and ranking
offerings from many different vendors. If you actually click
within that, you'll see that you'll actually go to the vendor
that will then sell you the product.
Senator Lee. OK. I'm going to want to follow up on that,
but I see my time's expired.
Thank you, Mr. Chairman.
Senator Kohl. Thank you, Senator Lee.
Senator Schumer.
Senator Schumer. Thank you, Mr. Chairman. I want to thank
you for holding this hearing. I want to thank Mr. Schmidt and
the other witnesses for being here to testify.
First, I share my colleague's passion for maintaining free
and fair competition in the marketplace, especially in the
high-tech sector. Google and its competitors are building the
infrastructure of the future economy and it's critical that
technological growth not be unfairly constrained. That's how
all markets work, but particularly in this area where
innovation really matters and things change quickly.
So I think that the FTC investigation will help get to the
heart of the facts behind the kinds of allegations we're
hearing today, and that's a good thing. So it is important we
examine market dominance with a critical eye, especially in an
industry that's a foundation of our economic future.
Now, I've been particularly passionate about the growth of
the high-tech sector because it has been, and will be, critical
to the future growth of New York. I realize that when most
people hear about high-tech sectors in the United States they
don't necessarily think of New York, yet by many measures New
York is No. 1 or two when it comes to employment or investment
in the entire sector. We're now the second-largest recipient of
high-tech venture capital in the country. We've passed Boston
this year and only trail Silicon Valley in the amount of high-
tech venture capital invested. This is the statistic that is
most amazing to me.
By some measures the New York metropolitan area actually
has more workers in the high-tech industry than any other
region of the country: over 300,000 men and women, 22,000 firms
that are classified as high-tech companies. That's right, we
have more than Silicon Valley, more than Boston, more than
Washington. It's sort of hidden by some of the other
industries. J.P. Morgan, I've been told, has more computer
programmers than companies like Google or Microsoft. So it's
very important to New York.
Google, frankly, has been a very important part of that
equation in New York. Last year Google bought the largest
office building in Manhattan. Google employs around 3,000
people in New York, that's double its employment rate from
2010, and in 2010 it provided $8.5 billion of economic activity
for New York businesses, websites, publishers, and nonprofits,
and I'd like to ask unanimous consent, Mr. Chairman, a number
of letters I've received from members of the New York
legislature, New York businesses, describing the significant
role Google plays in New York's economic development.
Senator Kohl. Without objection.
[The letters appear as a submission for the record.]
Senator Schumer. But obviously with that great power Google
has, as my previous colleagues have mentioned, great
responsibility. So I wanted to get a sort of fix on this.
Frankly, the future of New York's high-tech is lots of little
companies. There are hundreds of them that are burgeoning, one
or two of whom might grow into a Google or a Facebook or one of
the others. So if Google were being rapacious and were shutting
down the ability of these small companies to function, it would
hurt New York.
Every 6 months or so, I meet with some of the leading--the
heads--the CEOs of the high-tech companies in New York, the
growing--the little ones, and we talk about problems they face.
We don't have a good--you know, we don't have enough engineers
in New York, we're trying to build an engineering school.
Immigration is a huge problem to them. We need reform of H1-B
visas, things like that, which we're working on in the
Immigration Committee.
But without even prompting them--and I think this is
important for my colleagues to hear--there are over a dozen
companies at the table of different types, each of whom had
100, 200, 300 employees, and most of whom hadn't existed a
couple of years ago. And I asked them, what do you think of
Google? It was off the record. Is Google rapacious? Are they
competing with you, trying to steal what you do? I've been
through this before in previous hearings where one of New
York's companies, Kodak, I thought was being very unfairly
taken advantage of by another large high-tech company.
Or are they--generally do they have a more positive
attitude of being open, of encouraging, et cetera? Frankly, I
expected them to attack Google. That would be the natural
thing, you'd think. But they didn't. Four-fifths of them said
Google is a positive force, much more positive than most of the
other large companies they deal with. They said ``it helps us
more than it hurts us'', their words. The consensus was among
them, Google is actually pretty good. We don't see them as
rapacious. It surprised me and it's influenced me.
And so I think my colleagues ought to hear that, that while
it's important of course that we pay attention to competition
in the high-tech sector--I agree with you, Senator Lee, that
that's the best way to get growth--it's also important we focus
on growth and investment and jobs. And so I thought I'd just
share that with my colleagues because I think it's interesting
to hear and it was not--you know, there was no--they had no
idea I was going to ask about Google, it was off the record.
They are very frank with me about a lot of things, including
people's politics and things like that. OK.
Now, I have a question for you that's specific for New
York, and then a couple of general questions. Well, I don't
have too much timing remaining. But last year Google selected
Kansas City as a site for your new ultra-high speed internet
service. That really helped Kansas City. The Hudson Valley is
very eager to be another test place for your network. We have
IMB there, we have a lot of high-tech industry. It's growing,
but it's being hindered by a lack of internet capacity. Would
you agree to consider the Hudson Valley as a future test site
for your broad-band project?
Mr. Schmidt. I think the answer is absolutely. I've been
there and it's both a great technology place and also a
wonderful natural resource. What we're doing in Kansas City is
we're actually experimenting with a new model for broad-band,
different pricing, different speed, and so forth, and if it
works I think it has an opportunity to really change the
discussion of broad-band in this country. We want it to succeed
first in Kansas City, so absolutely.
Senator Schumer. And last question: we've heard your
answers here, but I'm sure you have to think about this because
you're always a growing and evolving company. What do you think
Google could be doing better to foster competition that you're
not doing now that you could do to help all those little
companies grow into big, successful companies?
Mr. Schmidt. I'm always interested in creating greater
platforms for innovation. If you take a look at Android today,
550,000 phones--perhaps others will ask about this--the number
of new platform opportunities for new companies to build mobile
apps on Android is very exciting. We could invest a lot more
money in developer support and platform support for the
industry that will be built around the platforms that Google is
building. I've always felt that that's something we could
invest even more in.
Senator Schumer. My time's up, Mr. Chairman. Thank you.
Senator Kohl. Thank you very much, Senator Schumer.
Senator Cornyn.
Senator Cornyn. Thank you, Mr. Chairman.
Welcome, Mr. Schmidt.
Mr. Schmidt. Yes. Thanks, Senator.
Senator Cornyn. Mr. Schmidt, I'm a frequent user of your
product and I've had--learned a lot when I've had a chance to
visit your facilities in California. It is a marvel of modern
technology. I have to confess that when I read the non-
prosecution agreement between Google and the U.S. Justice
Department, it gave me some concerns and I just want to give
you an opportunity to comment on that because, since the
Chairman talked about trust, we quoted Ronald Reagan, talked
about ``trust and verify'', I just want to know how you put
this into the context of what I would regard generally as a
very positive contribution to productivity and technology.
But the non-prosecution agreement between Google and the
Department of Justice, dated August the 19th, basically Google
admits to helping online pharmacies illegally sell hundreds of
millions of dollars of potentially counterfeit and tainted
prescription drugs to U.S. consumers. And as a result, as you
know, Google paid a--what is reported to be one of the largest
criminal penalties levied in cooperation in U.S. history, $500
million.
And just quoting: ``As early as 2003, Google was on notice
that online Canadian pharmacies were advertising prescription
drugs to Google users in the United States through Google's Ad
Words advertising program. Although Google took steps to block
pharmacies in countries other than Canada from advertising in
the United States through Ad Words, Google continued to allow
Canadian pharmacy advertisers to geo-target the United States
in their Ad Words advertising campaigns. Google knew that U.S.
consumers were making online purchases of prescription drugs
from these Canadian online pharmacies.''
In this document, Google admitted to knowing at the time
that many of these Canadian online pharmacy advertisers
distributed prescription drugs, including controlled
substances, based on an online consultation rather than a valid
prescription from a treating medical practitioner. And it was
not until 2009 when Google became aware of the DOJ's
investigation of its advertising practices in the online
pharmacy area that Google took a number of significant steps to
prevent the unlawful sale of prescription drugs by online
pharmacies to U.S. consumers.
So I want to give you the opportunity, Mr. Schmidt, to put
that in context so we can get a complete and accurate picture
of Google as a corporate citizen, and I think it also speaks
directly to the issue of trust.
Mr. Schmidt. Well, Senator, thank you. And again, all of
that is generally quite correct. We regret what happened and we
entered into the agreement that you named and cited from.
Unfortunately, as part of that agreement--and I've been advised
very clearly by our lawyers--that we have an agreement with the
Department of Justice, that we are not to speak about any of
the details of it, so I'd have to ask you to speak to the
Department of Justice for more of that.
All I can----
Senator Cornyn. Is that--is that in the 15-page agreement?
Mr. Schmidt. It's in there somewhere. Yes, sir. And so in
any case the important thing for me to say is that the conduct
that was covered is not--has nothing to do with any of our
current advertising practices or policies. In other words, it
was a historical event.
Senator Cornyn. Well, was it the result of oversight or
inadvertence, or were there some employees in the company that
were doing this without your knowledge or the----
Mr. Schmidt. Well, certainly not without my knowledge.
Again, I've been advised--unfortunately I'm not allowed to go
into any of the details, and I apologize, Senator, except to
say that we're very regretful and it was clearly a mistake.
Senator Cornyn. My counsel advises me that, under the
agreement, you're not allowed to contradict the agreement,
although you can comment on it. Is your understanding
different?
Mr. Schmidt. Let me ask my counsel. Again, I'm not allowed
to go into the details or characterize it beyond the--beyond
what has been cited in the agreement. We absolutely regret what
happened. It was a mistake and we certainly apologize.
Senator Cornyn. Well, do you disagree with the
characterization that I gave, or the words----
Mr. Schmidt. I agree with you, Senator. Yeah.
Senator Cornyn. And you've taken steps to make sure that
that sort of thing never happens again?
Mr. Schmidt. Absolutely. And again, I say that with great
regret.
Senator Cornyn. Mr. Schmidt, of course this is the
Antitrust Subcommittee. Would you agree with me that at some
point it becomes illegal under the antitrust laws to insist
that customers of one product buy another separate product,
generally called tying?
Mr. Schmidt. Yes. I'm not an attorney, but my general
understanding is that that's correct.
Senator Cornyn. Do you believe that your mobile Android
operating system--your mobile operating system, Android, has
reached that point? It's about 40 percent of the market and
growing fast, correct?
Mr. Schmidt. As a bit of background, as I mentioned
earlier, Android is on its way to becoming the most successful
mobile platform. We're extraordinarily proud of this. As I say,
we have 550,000 activations and the Android operating system
is, first and foremost, freely licensed. That is, there's no
fee whatsoever to use it. Speculating on the basis of your
question, it turns out that it's possible to use Google search
along with Android, but it's expressly also possible to not use
Google search. So the answer is, that's not an example of--of
the--of the case you were describing.
Senator Cornyn. Can Google design Android so that other
applications cannot work as well as Google applications? For
example, the Gmail application will always be faster than the
Yahoo mail application. Is that possible?
Mr. Schmidt. I'm sure that's not true in general because
under the rules of open source it's possible for anyone to take
open source and modify it in any way possible. So anything that
we did, which we wouldn't do, that would advantage our own apps
would be reversible by somebody because we give them the source
code.
In other words, the--historically the problem in this case
was that there was some hidden feature that a previous company
would do that wasn't visible. Because Android source is made
available to everyone, you can see it and we can't--we couldn't
choose that if we wanted to.
Senator Cornyn. Thank you. My time's up.
Senator Kohl. Thank you very much, Senator Cornyn.
Senator Klobuchar.
Senator Klobuchar. Thank you very much, Mr. Chairman, and
thank you for holding this important hearing. We all know that
Google is a big component of the internet. I was going my own
research as people were talking here, comparing--Googling my
name--which I'm sure no one on this panel, no Senator, has ever
Googled their own name. But I Googled my name on Google and
then I used Bing as well.
I will note that Google, for a fourth entry, beating out my
own Facebook page, featured a column that my dad wrote for an
online newspaper on Sunday about the Viking game, in which he
says, ``The laws of chance are basically silent on the odds of
another football team matching the mind-bending performance of
the Minnesota Vikings on Sunday.''
[Laughter.]
Senator Klobuchar. So Bing, luckily, does not feature that
article at all for the Vikings. But it was making me think
about how you do these rankings. According to some remarks
attributable to Google in the recent Minneapolis Star Tribune
article, Google uses nearly 200 different factors to determine
rankings. I know Senator Lee went through some of this with
you, and Google changed its ranking formula, according to this
article, about 500 times in 2010.
Obviously these change have a big impact. For example, the
difference between being ranked first and being ranked second
is that the first-ranked result gets about 35 percent of the
clicks, the second result I believe only gets about 11 percent,
and when Google changes its formula, companies that were once
first might end up being on the second page, or even further
down the line.
Businesses are constantly telling me how they want
certainty, and I know the same time Google is innovating and
changing its algorithm to improve its product. But do you think
companies should have a right to expect more certainty in how
they're being ranked?
Mr. Schmidt. In the situation that you're describing, I
have a lot of sympathy for the business whose ranking has gone
down. There's no question that natural search results do drive
revenue, traffic, popularity, and so forth, so when we make a
change, there are ancillary or unintended consequences such as
that. It's important to know that at the same time company A is
pushed down, another company goes to the top. And we are the
business of ranking, and by definition those ranking decisions
are not perfect. They could be--you could argue them one way or
the other.
Our algorithms are not specific to a specific company, so
you can have a situation where the ranking has changed for no
particularly good reason and the business feels upset. On the
other hand, there's another business that got, from their
perspective, a surprising boost and they're not the ones that
are complaining. So from my perspective, I--we don't know how
to be more--more precise with respect to the rankings because,
as our algorithms improve, we have to touch a billion people.
We make a change roughly every 12 hours in our ranking. Most of
them are relatively minor. In the article I think that you're
referring to----
Senator Klobuchar. Yes. Actually there's a small business
that makes above-ground pools in Browns Valley and they had
to--they said that they paid over $40,000 for an online
advertisement to make up for the fact that they had been put
down in the rankings. I think they freely admitted how
important Google was to their business----
Mr. Schmidt. Yeah. And again----
Senator Klobuchar [continuing]. But you could see the cost
it was for them.
Mr. Schmidt. No. There's--there's absolutely no question
that it's a cost. And again, we don't know how to do it with
more certainty, given that we're always focused on improving
our algorithms based on competition and the principles that I
described earlier about user testing. We did make a large
change approximately 6 months ago which touched a lot of firms
which had to do with low-quality content farms, which this
particular example is not, but that's relatively rare when we
make such a change.
Senator Klobuchar. One other issue that's come up to my
attention is there's reports that Google and the associated
websites participate as bidders in the auctions that Google
holds for search advertisements. Does Google or its associated
companies participate in those auctions?
Mr. Schmidt. You're referring to the auctions that Google
runs?
Senator Klobuchar. Uh-huh.
Mr. Schmidt. So we run an auction around advertising. We do
occasionally show what are called house ads, and--but we--so in
that sense we participate in the auctions but we try to limit
that for obvious--for obvious reasons. It's a very tiny number.
Senator Klobuchar. OK.
One thing that I've been focused on is the stealing of
intellectual property, books, movies, music, just the money
that's been going out of our country because of that. And, you
know, what happens sometimes, if you type in a legitimate song
or you type in a legitimate movie, you might be steered in some
of the top rankings to an illegitimate site. And is there
anything more that Google can be doing to take responsibility
for this? This is obviously a different issue than some of the
antitrust things, but I'm very curious about it. It's a very
important issue.
And again, we agree with--that there is a real problem
here. We have taken the position that we have to represent the
web as it is as opposed to the way we wish it to be. We try to
avoid censoring or deleting things unless by color of law, if
you will. In those particular cases--and I know this is before
the Senate--we favor positions which involve following the
money, people who really are stealing content to the degree
that the money that they're taking can be revoked from them,
and so forth. We think that's the best legislative approach.
Senator Klobuchar. So you follow the money. But still,
there must be some way to figure out if these sites are
illegitimate, if they still keep coming up.
Mr. Schmidt. It's difficult, and the reason is, assume that
the site--let's say, you know, I'm a stealing site.com. We can
identify that because we can do some kind of a test for
trademark violation. That company can then surface as another
site--test, and then they surface as another site. So it's a
whack-a-mole problem.
The other problem we have with copyright is it's hard to
know who owns the copyright. We have a very successful program
on YouTube where content owners register their videos, if you
will, and then if an illegally uploaded copy comes up we can
actually do the comparison. We can't do that in general because
of the nature--broad nature of the web.
Senator Klobuchar. And are you continuing to work on this
issue? Because I think it's----
Mr. Schmidt. Oh, it has a huge issue and it has affected
our business with the content companies on whom we critically
depend. So we're under great pressure to resolve this with a
good technological solution.
If I might add, the core problem is that you can look at a
website and you can tell that's copyright infringement just
like that, absolutely. The problem is, a computer can't. To do
it systematically is a very hard computer science problem.
Senator Klobuchar. OK.
Just two other things I wanted to add here. One is, Google
did a very good event in Minnesota. They reached out to some of
our small businesses and helped them to set up websites, which
was helpful. So I know that there's legitimate work being done
with the small businesses, but again, I share their concerns
about some of this ordering and how it affects them.
Second, since Senator Schumer mentioned having the Google
site in New York when it went to Kansas City, Senator Franken
and I are still focused on Duluth and I don't want you to
forget that.
Mr. Schmidt. Yes. Absolutely.
Senator Klobuchar. Thank you very much.
Mr. Schmidt. And if I could--if I could add, I know there's
a concern about small businesses. One of the great things about
Google is that small businesses can in fact be ranked higher
than they would otherwise be because they can be very specific,
and if we do anything we probably show small businesses better
than they would be in other approaches.
Senator Kohl. Thank you, Senator Klobuchar.
Senator Grassley.
Senator Grassley. Yes. Mr. Schmidt, I want to make a
statement, but before I do Senator Klobuchar reminded me that
one of those workshops is going to be held in Pella, Iowa next
week. If we maintain our week-long recess from Washington, I'm
going to go to that.
Mr. Schmidt. OK. Thank you.
Senator Grassley. I'm going to have a short statement, and
then I want to put a longer statement in the record, Mr.
Chairman.
STATEMENT OF HON. CHARLES E. GRASSLEY, A U.S. SENATOR FROM THE
STATE OF IOWA
Senator Grassley. I've heard both good and bad about Google
from Iowans. Some are concerned that Google is unfairly using
its market power to manipulate search and drive web traffic to
its own sites to the detriment of small business and consumers.
They're frustrated by business practices that are not
transparent. They believe Google is engaging in anti-
competitive behavior, thwarting a competitive marketplace.
Now, others are extremely supportive of Google's products
and services. They're concerned that the Federal Government is
being overly aggressive and will place burdensome regulations
on a company that is creating good jobs and innovative consumer
tools. We should not be penalizing successful companies that
are innovating, providing cost-effective and productive
services and creating jobs.
But I also believe that companies should not take unfair
advantage of their market power, engage in deceptive business
practices that negatively impact the marketplace. The
government should not be picking winners and losers. The
antitrust laws have a role to play in ensuring that there's a
level playing field. All companies must play by the rules.
Companies should employ open, fair, and transparent business
practices that do not harm competition and impede consumer
choice.
[The prepared statement of Senator Grassley appears as a
submission for the record.]
Senator Grassley. I go to my questions now, Mr. Schmidt,
and I'm going to quote without attribution several
communications I've had with Iowans on both sides. I'll start
out with, what do you say to Iowans who are concerned that
Google ``uses its power to manipulate consumers and drive
traffic to itself and away from potential competitors for
traffic and ad revenue? '' So kind of, how do you respond to
that? An additional quote is, are you concerned that your
company has been ``exerting enormous power to direct internet
traffic in ways that hurt many small rural businesses? ''
Mr. Schmidt. So I'd like to return to the philosophy that
we've had for some years, which is to focus on getting to the
right answer. And we have a lot of systems inside the company--
internal testing, external testing, 1 percent tests as they're
called--to really make sure that we're producing the results.
And that is the guide that we use. It's really about consumers.
As we discussed earlier, it's perfectly possible that in the
course of that, extremely good and well-meaning small
businesses move up and down in the rankings. But we are in the
rankings business, and so for every loser there's a winner, and
so forth.
I am satisfied that the vast majority of small businesses
are extremely well-served by our approach, and as I said
earlier to Senator Klobuchar, I do believe that, if anything,
our system promotes and enhances small business over larger
businesses because it gives them a hearing and a role that they
would not otherwise have because of the nature of the way the
algorithms work.
Senator Grassley. Here's a quote from somebody that
supports Google. How would you respond to the Iowan who wrote
that, ``Further restrictions on successful businesses like
Google are the surest way to impede innovation,
entrepreneurship, ultimately threatening any sustainable
economic recovery? ''
Mr. Schmidt. Well, again, we would like to be judged, and
we're happy to be reviewed and judged by you all and by all the
other appropriate legal processes, based on the principles that
we've set out, which are to focus on consumers and consumer
choices. We are always worried about consumers being able to
move from ourselves to our current largest competitor, which is
Bing, and then the many new competitors that have emerged over
the last few years. So we argue that we're in a highly
competitive market. We welcome the oversight, but we would ask
that you understand the way we're making the decisions is based
on the principles.
Senator Grassley. You may want to say how you help small
business beyond what we talked about here, these workshops that
you have. But in addition to anything you want to say along
that line, how can small businesses' websites compete with
large retailers and big box stores on Google?
Mr. Schmidt. The historic--it's interesting that Google
was, first and foremost, a success in small businesses because
small businesses were more nimble than the big businesses when
it came to the internet. So we have a long history of promoting
and helping small businesses, and we love this. Small
businesses succeed precisely where the larger ones don't. Small
businesses succeed because of specialization.
So what we try to do when we try to get companies online,
is we try to get them to articulate the unique way in which
they're different. So in your case with your constituents,
there's something unique or special about the citizens and the
view and the culture of your State. And if they can show off
that, they're going to, on the margin, both be ranked higher
and also appeal to a broader audience. What's great about it is
that we can have local flavor with global impact, the local
flavor seen on the website and global impact in terms of the
market that you're serving.
Senator Grassley. A question that would come from somebody
who is not an admirer, complaints along the line that Google is
directing internet users to Google-operated websites regardless
of whether the organic results of the search would direct users
to competing sites. Specifically, some of my constituents are
concerned that small, local Iowa businesses are not treated in
a fair and competitive manner and that the top search results
to a query are often given to large national companies, even
when a search designates a specific Iowa location in the query.
So he obviously feels small businesses are being cheated and
consumers are being misled. Your response?
Mr. Schmidt. It's perfectly possible that you're describing
failures of our algorithm. A large company can masquerade as a
small business in Iowa, and it may be difficult for us to
detect it. We're constantly making changes in testing to try to
improve it.
In the case that you are describing, part of the answer we
would give is that hopefully you will have a mixture of larger
companies and smaller businesses that reflect the best of Iowa
in that particular scenario. But the precise ranking algorithms
are so difficult to characterize, why am I first and another
second, because there are so many different signals and it's
applied so broadly that it's hard to reason from a specific
case out to the general case.
Senator Grassley. Thank you, Mr. Chairman.
Senator Kohl. Thank you, Senator Grassley.
Senator Franken.
Senator Franken. Thank you, Mr. Chairman, for this
extremely important hearing.
First, I want to start out by saying that I love Google,
and I said that the last time Google was here in front of my
Subcommittee but I think it bears repeating. Google has utterly
transformed the way we locate and use information. I have a
feeling that Google is going to continue to be among those
setting the standard for innovation in this country for decades
to come. But in many ways Google's unprecedented growth and
success is also one of the reasons we need to pay attention to
what you're doing.
As you get bigger and bigger and bigger, I worry about what
that means for the next Larry Page or Serge Brin, who are
struggling to build the next innovative product in a garage. I
am admittedly skeptical of big companies that simultaneously
control both information and the distribution channels to that
information. For me, that is at the heart of the problem here.
When you completely dominate how people search for
information and you own separate products and services that you
want to succeed, your incentives shift, your fiduciary duties
to your shareholders shift, and people have reason to worry
that you aren't going to play fair.
I was a little taken aback by an answer you gave when the
Chairman brought up Marissa Mayer's quote that, ``When we
rolled out Google Finance we did put the Google link first. It
seems only fair, right? We do all the work for the search page,
and all these other things, so we do put it first.'' You
answered that by saying that, well, you put a map out there.
When someone wants a map to someplace, you just put a map out
there and that's what they want. I sort of understand that. Or
a financial answer of stock price. But then the Ranking Member
asked you, well, when that's not the case----
Mr. Schmidt. Right.
Senator Franken [continuing]. When you're not putting out
the answer that people want, when you're not doing that, do all
your rankings reflect an unbiased algorithm? And you said,
after a little hesitation, ``I believe so.'' That seemed like a
pretty fuzzy answer to me, coming from the Chairman. If you
don't know, who does? That really bothers me because that's the
crux of this, isn't it? And you don't know. So we're trying to
have a hearing here about whether you favor your own stuff and
you're asked that question, and you admittedly don't know the
answer.
I want to talk about Yelp a little bit. I read through the
testimony of Mr. Stoppelman, the co-founder and CEO of Yelp
last night, and I have to say that I found his story to be
quite compelling. It sounds to me that Google, first tried to
license Yelp's content and did, and then when Yelp terminated
that contract, Google tried to buy Yelp.
When Yelp refused, Google started taking Yelp's reviews and
showed them on Google's page. We're going to hear from Mr.
Stoppelman soon, but I wanted to give you a chance to respond
to some of the points in his testimony. Did you get a chance to
read it and did you get a chance to look at the exhibits?
Mr. Schmidt. In general terms, yes, not in specific. But
I'm generally familiar with Yelp, so----
Senator Franken. OK.
First of all, Yelp contends that even now consumers cannot
find links to Yelp in Google's merged results. Mr. Stoppelman
goes on to say that ``it is impossible for any of Google's
competitors to be displayed as prominently as Google itself,
even if Google's own algorithm rates them higher.'' Do you
think that's a fair characterization?
Mr. Schmidt. I generally disagree with----
Senator Franken. Generally?
Mr. Schmidt. Again, with Mr. Stoppelman's comments, and
he'll have an opportunity to say what he'd like in a minute.
The background on Yelp is that they've been a partner and an
important site on the web for many years, and they've been
always relatively highly ranked in our search results.
We've always had them part of our index. Some years ago we
decided to start working on a project built around location,
and the idea was to create, if you will, a hub of information
around a place, so that would be a map and information about
the things that are at that map, so a restaurant, a store, or
what have you.
And given that we search this information, we also took
snippets of the results from Yelp, along with many others, and
put those into those web results. Those became what are known
as place pages today. I should say, by the way, that our
competitors also have a similar offering. And if it's--if
there's confusion as to why we need a place page, think about a
mobile device. If you have a phone--so you have your phone
here, it's going to be very difficult for you to go through the
10 links, whereas if you have a map and you can sort of thumb
around and move around, that all makes sense.
So in the particular case of Yelp, I felt that Yelp would
be very happy with us pointing to their site and then using a
little bit of their reviews, because we had gotten those in the
index, and then sending traffic to them. They were not happy
with that. They sent us a letter to that effect and we took
them out of the place pages.
So if you look today you'll see that they're not in there.
You have the Google reviews and a bunch of other stuff like
that, and ultimately we bought a company called Zagat to try to
do something similar. So this is not a case of generic ranking
and so forth, it's about us trying to create these place pages
and get information to solve a different problem.
Senator Franken. I'm out of time. I'd just like to ask one
short question and then hopefully go to a second round if we
can. Is Google still using Yelp's content to drive business to
Google Places?
Mr. Schmidt. As far as I know, not.
Senator Franken. As far as you know?
Mr. Schmidt. Well, again, I'll have to look, but I'm not
aware of any.
Senator Franken. OK. Maybe Mr. Stoppelman will help us on
that. Thank you.
Senator Kohl. Thank you very much.
Senator Blumenthal.
Senator Blumenthal. Thank you, Mr. Chairman. And thank you
to you and the Ranking Member for having this hearing which I
think is very important. Thank you for being here, Mr. Schmidt.
We welcome you here and I want to join my colleagues who have
remarked on what a tremendous success story Google is, a great
American success story, a great consumer success story.
And I certainly have formed no conclusions whatsoever as to
any of the questions you've been asked, or others that may
relate to the concerns that have been expressed, those concerns
focusing on the size and market power of Google and whether it
is of a scope and scale that it invokes certain
responsibilities under our law, and whether or not Google has
complied with those responsibilities.
But there's no question about the fact that Google is
really the behemoth in the search market these days and that it
far outsizes its nearest competitor, which has less than 30
percent of the market as compared to Google's 65 or 70 percent
more in searches, and an even higher share in advertising
revenue, and that the trend will be toward perhaps an even more
sizable share on the part of Google in the search market. The
reason I say it is your nearest competitor is losing $2 billion
a year, and Google made $29 billion in 2010.
I think that the dynamic here is best summarized by
Jonathan Rosenberg, who is your own vice president of Product
Management, who said--and I'm quoting. He said it in 2008. It's
not your voice, but I think it does speak to the dynamic in the
market: ``So more users, more information, more information,
more users, more advertisers, more users, it's a beautiful
thing: lather, rinse, repeat. That's what I do for a living. So
that's the engine that can't be stopped.''
The hearing and the testimony here, and a lot of what's
been written and said, has many allegations. They are only
allegations--they haven't been proven--about scraping content
and co-opting that content. My colleague, Senator Franken, just
raised Yelp's allegations, the other kinds of claims about
anti-competitive conduct.
So my question to you is, drawing on the lessons that
presumably you have learned as you very forthrightly
acknowledge, can Google suggest measures to be taken
voluntarily at this point to promote competition, to dispel
those allegations, and perhaps dissipate some of the momentum
toward government intervention? And I ask this question in the
spirit of trying to avoid government regulation and
intervention.
In my view, some of the companies who have occupied your
chair before you have been their own worst enemy in that
regard, and your very frank acknowledgement about Google's
responsibilities and its approach, I think, speaks an approach
to, in effect, try to do voluntarily what's in consumers' best
interest, because competition is in consumers' best interests
before there is intervention either by a government agency or
by a court.
Mr. Schmidt. My general answer would be that making the
internet win guarantees very strong competition for all of us.
I understand you were asking a more narrow question, but the
fact of the matter is there are many, many new startups that
are potential future competitors of Google and of others. For
examples, there are sites now that are seeing more than half of
their traffic coming from Facebook, and Google is a very small
component of the traffic that they get.
So there is every reason to believe that a broad strategy
to promote the internet and promote competition and investment
in companies, the IPO market is one of the hottest markets ever
done, so I would argue that the levers are necessary--are
necessary to guarantee the outcome you're looking for are
largely already in place.
Senator Blumenthal. Well, let me be more narrow in my
question. Right now, as I understand it, certain Google
properties--Maps, for example----
Mr. Schmidt. Sure.
Senator Blumenthal [continuing]. Are at the top of the
search results----
Mr. Schmidt. Right. Sure.
Senator Blumenthal [continuing]. Regardless of the
algorithm or the formula or the methodology.
Mr. Schmidt. Sure.
Senator Blumenthal. They are at the top. Would, for
example, eliminating that preference be a step in the right
direction?
Mr. Schmidt. Well, I would disagree for two reasons. First,
I think it would be bad for consumers because consumers
actually wanted a map, and now you're--by virtue of such a rule
you're forcing people to do steps. The second, of course, is
that it would allow the competitors to offer such that--but
without Google being able to do it because competitors all have
that as well. So what I'm worried about is, such a restriction
would--would essentially prevent us from meeting our primary
mission.
Senator Blumenthal. Are there other specific steps that you
would suggest? I mean, if we were a court and liability were
found and the question were remedied, what would you suggest?
Mr. Schmidt. Well, again, I----
Senator Blumenthal. And I don't mean to put you in an
unfair position.
Mr. Schmidt. No, no. I----
Senator Blumenthal. It's a very, very, very hypothetical
question.
Mr. Schmidt. I've actually spent a lot of time thinking
about this. We had a long conversation some years ago about how
Google would behave to avoid being evil when we were big. And
we actually believe that we've made those changes, steps and so
forth. A classic example is, we created the Data Liberation
Front so that we cannot capture or, if you will, hold your
data.
If you wish to flee Google to a competitor, Bing for
example, or another one, we make it very easy for you to do
that both for your personal data, as well as your advertising
data. So we think we've done the things that would be
appropriate to make sure we stay within an appropriate
competitive box. We're certainly open to suggestions as to
additional steps.
In a competitive market like we're seeing with the
extraordinary expansion of choices on the internet, ultimately
the internet--the global playing field that is the internet is
the real protection because of the combination of the one-
click-away and the huge amounts of money that have been
previously described going into these spaces.
Senator Blumenthal. My time has expired. I thank you for
your responses, and I hope there will be a second round.
Mr. Schmidt. Thank you, Senator.
Senator Blumenthal. But that's up to the Chairman.
Senator Kohl. All right. We'll work on a second round of 3
minutes, then we'll see if we want a third round.
Mr. Schmidt, industry stats show that Google runs between
65 and 70 percent of all internet searches in the U.S. done on
computers and about 95 percent on mobile devices, and has over
75 percent of all search advertising revenue in the United
States.
Under common antitrust standards, this kind of a market
share is considered to constitute monopoly power. Does Google
recognize that as a monopolist or a dominant power? Special
rules apply that there is conduct that must be taken and
conduct that must be refrained from.
Mr. Schmidt. We certainly understand the role that we play
in information and we also understand the proper role of
government and your role and so forth to inspect what we're
doing. We're satisfied today that the things that we're doing
are well within the both legal and philosophical bounds of what
we're trying to do because we answer the question based on--in
a competitive market, we're very focused on consumers. So the
answer, Senator, is we very much understand the role that we
have to play and we're kept honest all the time, and not just
by your good graces but also that of the press and the many
other people who look at what we do.
Senator Kohl. But you do recognize that in the words that
are used in antitrust kind of oversight, your market share
constitutes monopoly, dominant--special power, dominant firm,
monopoly firm? Do you recognize you're in that area?
Mr. Schmidt. I would agree, Senator, that we're in that
area. Again, with apologies because I'm not a lawyer, my
understanding of monopoly findings is it's actually a judicial
process, so I'd have to let the judges and so forth actually do
such a finding. From our perspective we see ourselves as having
a special responsibility to debate all the issues that you're
describing with us. Now we do understand it.
Senator Kohl. Thank you.
Our hearing so far has focused on issues of commerce and
business competition, but even more importantly perhaps is the
potential influence on news and information the American people
receive. This issue points out how important it is that we
preserve competition. In the internet search market, right now
Google is the primary way Americans search for news and
information on the internet. If your only search engine
competitor, which is Bing, were to go away, for example, Google
would then be the only search engine citizens could use to find
this kind of information.
Given its dominant share of internet searches, Google is
essentially a gatekeeper with enormous power to influence
information and news coverage citizens find on the internet.
For example, those searching the internet for information on
today's hearing could get links to my opening statement, or a
testimony of your critics on the next panel as the first search
result. More people searching for information on President
Obama could get links to the White House office website or a
critical column on the President, or in a weekly standard.
You would argue, I suppose, that Google simply returns the
most relevant results first for any news or information query
free of any political bias, but is this really possible? There
must be some decision as to whether my opening statement or
your testimony at this hearing is at the top of the information
results. Is it really possible to have truly unbiased search
results for news and information queries? Should we be troubled
by any one company, however well-intended like yours, having
huge, huge influence over news and information citizens find on
the internet? And doesn't this demonstrate the absolute need
for competition, and real competition, in this area?
Mr. Schmidt. Well, as I said earlier, we're very strongly
in favor of competition. There's a lot of evidence that much of
the online news is now being consumed and generated within the
social networks, and so we would want to add that into the
framework, Senator, that you proposed.
With respect to the question of ranking algorithms and
bias, it's--it's ultimately a judgment, what comes first or
second. And in our case, because we have so many things to
rank, it would not be possible for me to explain to your
satisfaction or to my own why one link about this testimony was
one higher or lower. It's a complex formula involving
influence, and who points to whom, and the way in which it's
expressed and so forth using a proprietary algorithm that
Google has developed, which we're very, very proud of. It's the
best that we can do, and I want to say right up front that we
do occasionally make mistakes.
Senator Kohl. All right.
Now we turn to Senator Lee.
Senator Lee. Mr. Schmidt, I just want to make clear and get
a statement on the record under oath: does Google give any
preference to its own listings--places, or shopping results, et
cetera, in its own natural search ranking results?
Mr. Schmidt. Again, the reason I was a little confused by
your earlier question is the word ``preference.'' We have a
product called Universal Search. Universal Search chooses how
to organize the page and so that decision includes many
components in the natural search. It will, for example, when we
think you're looking for a product, we will pop out this
product search, essentially insert, that you showed earlier.
If you go through that product one--that product search
thing that we put out, it actually, as I pointed out, takes you
to other sites that actually then want to sell products. So the
answer is, we give preference but we give preference in the
context of our best judgment as to the sum of what the person
wants to do. Did I help answer your question? I apologize for
not answering it earlier.
Senator Lee. Yes. Yes. I think that helps answer the
question. So it does give preference to those lead--perhaps in
the case of the camera, not to your own camera sales port, but
to another page where you're maybe not selling cameras, but
you're selling advertisements, and if anyone clicks on that you
get advertising.
Mr. Schmidt. In that case I don't actually think there's
any advertising component into that decision, but I take your
point.
Senator Lee. OK.
In preparing for this hearing I was uncertain as to what
might be the full extent of my concerns regarding Google's
current practices, but some of my fears, I have to say, have
been confirmed as a result of our conversation. I'd just like
to summarize, Mr. Schmidt, what some of those concerns are. I
am troubled by some of Google's practices, its practice of
inserting its own offerings, in the midst of natural
algorithmic search results, usually in the most prominent
position of the page and with the most eye-catching display.
My concerns related to this are really three-fold. First,
this practice seems to me to leverage Google's primary search
dominance to give its own secondary services and listings an
unnatural and an extraordinary advantage. No other specialized
business or search site can hope to compete on anything close
to a level playing field when Google uses its significant
market power to disadvantage online competitors.
Second, this same practice that I described presents a
clear and inherent conflict of interest. Rather than acting as
an honest broker of information, Google now has a strong
financial incentive to channel users through its own listings,
regardless of their quality. As Google vice president Marissa
Mayer noted, ``To the degree that we'', meaning Google, ``host
content we ultimately have a monetary incentive to drive people
to those pages, if those pages have ads on them.''
Finally, I worry that this practice harms consumers.
Manipulating algorithmic search results violates consumers'
legitimate expectations, and by unfairly disadvantaging
competing services it may ultimately reduce consumer choice and
stifle innovation.
Again, Mr. Schmidt, I am troubled by what we've learned
today about Google's practices and I hope that you will take
swift action necessary to resolve these concerns. Thank you
very much.
Thank you, Mr. Chairman.
Senator Kohl. Mr. Franken.
Senator Franken. Thank you. I think I'm the Chairman now
for a while.
[Laughter.]
Senator Franken. Then the Chairman will be back.
Mr. Schmidt, let's shift to talk about mobile search
because clearly the direction of growth of the Internet is
going to mobile, and searches will be going to mobile. I
understand you control about 97 percent of mobile search. You
are the default search engine on all Apple phones. Is that
true?
Mr. Schmidt. That is correct.
Senator Franken. OK.
And you also own Android, which is the largest mobile
operating system. This type of dominance ultimately means that
you control what consumers use when they purchase an Android
phone. Nielsen released a study last week that stated that five
of the six dominant apps on the Android device are owned by
Google. Only Facebook made it into the top six. I have no doubt
that part of the reason for that is that Google often creates
superior products.
But that isn't the only reason. What comes pre-loaded on a
phone impacts what apps win--which ones win or lose in the
battle for consumers' attention. Do all Android devices come
pre-loaded with apps for Google Maps, Google Places, Gmail, and
now Google Plus?
Mr. Schmidt. They do not.
Senator Franken. They do not. Do many of them? Do a large--
--
Mr. Schmidt. My--my----
Senator Franken [continuing]. Majority of them?
Mr. Schmidt. My not-too-precise estimate is that a slight
majority come with it. I would estimate on the order of two-
thirds come with it, pre-loaded.
Senator Franken. So if an equipment manufacturer that makes
Android phones for you doesn't want to pre-load Google apps on
its devices, can they do that?
Mr. Schmidt. Absolutely.
Senator Franken. OK.
If I am a customer and want to use Yelp instead of Google
Places, is it easy for me to delete Google Places on my phone
and upload Yelp?
Mr. Schmidt. Well, Google Places is essentially a result
from search results, so if you simply used--if you didn't use
Google search you wouldn't have Google Places at all and Yelp
is available through all the browsers that are available on
Android, so Yelp is always available independent of that.
Senator Franken. I'm talking about as an app.
Mr. Schmidt. It's not an app. Google Places is not an
application on Android, it's a result from a search.
Senator Franken. OK.
Mr. Schmidt. OK.
Senator Franken. So what apps--what Google apps are there?
Mr. Schmidt. Gmail, chat applications, those sorts of
things.
Senator Franken. OK.
Mr. Schmidt. And again, to help, I think what you're--if I
may, I think what you're getting at is----
Senator Franken. Sure.
Mr. Schmidt. I think what you're getting at is----
Senator Franken. Tell me what I'm thinking.
[Laughter.]
Mr. Schmidt. No, I was just trying to be helpful.
Senator Franken. Yes, I know. Thank you.
Mr. Schmidt. Many Android partners combine Google search,
Gmail, chat, and a few other apps into a package. And I believe
what you are referring to is the fact that in that case we do a
revenue share with them on the Google search.
Senator Franken. Well, thank you. My time is up.
Senator Blumenthal.
Senator Blumenthal. Thank you. Again, I want to emphasize
to you, I've reached no conclusions and I will be submitting
other questions in writing because----
Mr. Schmidt. Sure. Yes.
Senator Blumenthal [continuing]. We may not have time for a
third round, and I'm sure that you will be happy to be relieved
of that spot.
[The questions appear under questions and answers.]
Senator Blumenthal. But, you know, I've been trying to
think of the analogy here to what the ordinary consumer can
understand as what Google does, and as I sat here, you know,
the racetrack analogy. You run the racetrack, you own the
racetrack. For a long time you had no horses. Now you have
horses and you have control over where those horses are placed,
and your horses seem to be winning.
And, you know, I think what a lot of these questions raise
is the potential conflict of interest, to use a sort of
pejorative, but not necessarily to be critical, because you may
have great products and you put them first and you may regard
that placement as a service to consumers, but inevitably that
will stimulate the kind of criticism that has brought you here
today.
Mr. Schmidt. So it won't surprise you, Senator, to say that
I disagree with your analogy completely.
Senator Blumenthal. And I invite your disagreement.
Mr. Schmidt. So--OK. So I prefer to think of the internet
as the platform. You can think of Google as a GPS, right? It's
a way of getting there. One of the most important things to say
here is--again, with respect to all the complaints, and
comments, and so forth, Google does nothing to block access to
any of the competitors and other sources of information, we
encourage it. Indeed, in all the cases that have been used
where we come to an answer, we also show all the other possible
answers. We try to be as inclusive as possible.
So from my perspective, when I net it out, we need to be
able to--to be free to get to what we think algorithmically is
the best answer to the query that the person has done, and if
we can do that with no clicks, zero--literally zero click and
we can compute it algorithmically, that's better for the
consumer. I really genuinely believe that.
Senator Blumenthal. But to return to my analogy, there's no
allegation that you necessarily exclude those other horses. To
use your analogy, there's no allegation that you would
necessarily misguide a consumer to go in the wrong direction on
the Internet, but there is something different when you own a
place and the directions happen to put the consumer at the
place you own as opposed to some other place that, in
appearance, objectively, might result in that consumer going to
another place. You know, I realize that we're over simplifying
a very difficult and complex area, but again, I invite your
comments and disagreement.
Mr. Schmidt. Again, I think that the most important thing
for us to do is to come up with the quickest answer the best,
and this is the best we know of how to do that. We do, in fact,
have the concerns that you're describing in our minds as we
make these decisions, but we are--and we've said this for
years--we really, really do test this stuff and we really do
believe that this is the best choice for consumers and we run
the company for the benefit of the consumers, frankly not for
the other websites.
Senator Blumenthal. My time has expired, but I thank the
acting Chairman.
Senator Franken. Thank you. And to carry your analogy just
one step further, you might have been saying that you think
Google might be doping the horses.
[Laughter.]
Senator Franken. Is that what you're saying?
Mr. Schmidt. I didn't say that.
Senator Franken. Oh, OK.
[Laughter.]
Senator Franken. I guess I misunderstood.
Senator Klobuchar.
Senator Klobuchar. Thank you very much.
I was thinking of--what a lot of the questions have been
focused on is just this--how the searches work and how you end
up at one or how you end up on the next page suddenly in 1 day.
Have you thought about how more transparency--and if there's
other things that you could do to explain to people why this
happening and when there's going to be a change?
Mr. Schmidt. I think this is, again, an excellent point. We
do a lot of tools for websites so that they can understand how
they're ranked and the changes that we have made. We don't, in
my view, do enough, so I agree with your question there.
There's a limit to how much transparency we can provide, for
two reasons. One is that our algorithms, the actual ranking
algorithms, are viewed as quite proprietary. They're viewed as
our innovation, if you will, by our great scientists at Google.
The second is that if we're completely transparent as to
how the algorithms work, they will be heavily gamed by sites
that try to spam us. We've had experiences where people will
latch onto some behavior and then essentially manipulate the
index to produce a really false answer, which often is the butt
of jokes, and so forth and so on. So there's a limit to how
transparent we wish to be with respect to our actual ranking
algorithm. I do agree with you that we can do a better job of
describing the change and so forth. I think that's exactly
right.
Senator Klobuchar. OK.
Just one last question here. You know, you--online users
are in many ways your customers, but then also the businesses
that advertise are your customers. So does Google need to be
careful that the privacy and protection of the web users
doesn't come into conflict with the business interests of those
that are advertising on the web, and how do you resolve that
conflict?
Mr. Schmidt. We debate this quite a bit. We have a very
detailed privacy policy about how we behave with users' data,
and there have been a number of businesses suggested to us over
the years that would use--that would, in our view, misuse
people's private data, search histories, and so forth, and
we've said no to those. It's very, very important that the
history of people's searches, where they are, what they do is
not used without their permission in these advertising
products. I think you'll find that Google will be one of the
exemplars of that principle. And as this becomes a bigger thing
for many, many companies, a lot of people will face this
question.
Senator Klobuchar. Thank you very much.
Senator Franken. Well, we are now going to transition to
the second panel. We thank you, Mr. Schmidt, for being here and
for your testimony. I'm glad that my colleague from Minnesota
brought up privacy. I am the Chairman of the Subcommittee on
Privacy, Technology and the Law, and I would probably like to--
we'll be keeping the record open for 10 days.
Senator Klobuchar. One day.
Senator Franken. Twenty days?
Senator Klobuchar. One day.
Senator Franken. Oh, one day.
[Laughter.]
Senator Franken. One week. OK. It's either 10 days, one
week, or 20 days.
[Laughter.]
Senator Klobuchar. One week.
Senator Franken. I'm the Chairman right now and----
[Laughter.]
Senator Franken [continuing]. And I think we'll do 1 week,
which I think is actually the proper answer.
Chairman Kohl apologizes for not being here for the
conclusion of your testimony, but was needed for votes in the
Appropriations Committee.
So we thank you. Since we're open for I think a week, I
also plan to submit a few questions on privacy and intellectual
property theft. But I really thank you, and I'd like to call
the second panel now.
Mr. Schmidt. And Senator, thank you. Thank you for giving
me the opportunity to appear before your--your panel here. We
will be happy to answer any other questions, Senator, and so
forth, and clarify any of--any of the questions that require
further clarification. So, thank you very much.
Senator Franken. You're very welcome. You'll have that
opportunity because the record will be open for a week.
We now call the second panel. You know what? We're going to
take a brief recess. So if you want to sit there, get used to
that place, you can do that, or if you want to just mill around
and chat idly, you can do that as well. We're going to take a
brief recess, and I believe the Chairman--the real Chairman--
will be back any moment. So, recess.
[Whereupon, at 3:41 p.m. the hearing was recessed.]
AFTER RECESS [3:44 p.m.]
Senator Kohl. We'll now be--the hearing is resumed. We'll
now be moving to our second panel.
First on this panel will be Mr. Thomas Barnett. Mr. Barnett
is a partner at Covington & Burling and co-chair of the firm's
Antitrust and Consumer Law Practice Group. Mr. Barnett served
as the Assistant Attorney General for Antitrust in the U.S.
Justice Department from 2005 to 2008, and he represents
Expedia, a member of the Fair Search Coalition.
Next, we'll be hearing from Jeff Katz, CEO of Nextag. Mr.
Katz joined Nextag in March of 2010 after serving as president
and CEO of Leapfrog Enterprises, and was the Chairman and
founding CEO of Orbitz from 2000 to 2004.
Next, we'll be hearing from Jeremy Stoppelman. Mr.
Stoppelman is the co-founder and CEO of Yelp, a position he has
held since 2004.
Finally, we'll be hearing from Susan Creighton. Ms.
Creighton is a partner at Wilson Sonsini Goodrich & Rosati,
where she does serve as co-chair of the firm's Antitrust
Practice. She served as Director of the FTC Bureau of
Competition from 2003 to 2005, and she represents Google on
antitrust matters.
We're happy to have you all here today. Mr. Barnett, we'll
start with you, for 5 minutes.
STATEMENT OF THOMAS O. BARNETT, PARTNER, COVINGTON & BURLING,
LLP, WASHINGTON, DC
Mr. Barnett. Thank you, Chairman Kohl. It's good to see you
again. And thank you, Ranking Member Lee and Senators, for
holding this important hearing.
I would like to start with a general observation. I was
heartened initially by the statement that--from Chairman
Schmidt that Google ``gets it.'' But to be frank with you,
based on my experience both in the private sector and the
government, Google doesn't get it. Companies that get it will
step up to the plate, admit to reality, and focus on what are
the real issues. Google won't even admit to reality.
Let me tell you what I'm talking about. The first element
of a Section 2 monopolization claim is, is Google a dominant
company? Do they have monopoly power? I think as this Committee
recognizes, undoubtedly Google has monopoly power in search and
paid search advertising.
You don't have to take my word for it, you all heard it.
Both the Department of Justice and the Federal Trade Commission
have conducted extensive investigations in this area, and both
of them, the expert agencies, reached factual determinations
that show that Google has monopoly power. There's a Federal
judge who believes that they are dominant.
But don't take my word for it or their word for it, take
the word of Chairman Schmidt. If Kelly could put up the first
chart. In 2003, in a moment of candor, Chairman Schmidt
acknowledged that ``managing search at our scale is a very
serious barrier to entry.'' If you have an 80 percent share of
the market with barriers to entry, you have monopoly power.
Those barriers don't come from the supposed cost of
switching or clicking to another site. The barriers come from
building an effective search engine. You need the scale, the
volume of traffic that Google has to tune the engine, and it's
an ongoing process. Nobody else is going to catch Google, even
if you had access to their algorithm today. They have market
power.
Second, is that market power expanding? Absolutely, their
dominance is expanding into maps, into video, and finance, and
product. Mobile is an important area where they're expanding. I
think Senator Franken pointed out, 97 percent of searches on a
mobile device and 98 percent of paid search advertising served
to a mobile device is from Google. Moreover, their Android
operating system, which is on more than 50 percent of every
Smart Phone shipped in the United States today, is rapidly
becoming the dominant mobile operating system.
So from a Sherman Act monopolization/monopoly maintenance
perspective, is there a problem? Yes, there is a problem if
Google is engaging in any improper conduct to maintain or to
expand its dominance. And the question is not, does Google do
anything that is good. Google does lots of things that are good
and they want to point you to that. But what they don't do is
step up to the plate and acknowledge there are some things that
are highly problematic.
If Kelly could put up the second chart, similar to the
screen shot that Senator Lee put up there. Marissa Mayer, in
her quote that we've talked about, acknowledged that Google
places links above the natural search results. The blue are the
natural search results. The other, the orange, are the paid
search ads that are labeled as ads because they have an
economic interest in that.
What's in the middle? Well, what's in the middle is not
algorithmic. Does Google ever tell the user it's not
algorithmic? Absolutely not. There are multiple links on this
page that, when you click on it, will take you to a Google
Places page. And on that Google Places page, Google will
advertise and they will earn money. Google has a direct
financial interest in placing that link above the natural
search results. By failing to disclose what they're doing to
users, they can mislead them into going to a site that they
think, because we're all conditioned to think, well, what's at
the top of the page, the algorithm has told us, is the most
relevant to our queries. It's not an algorithmic result and
they haven't disclosed that fact.
In the Android operating system there's already indication
that they're using compatibility as a club to force handset
manufacturers to do things to help Google and harm competitors.
You will hear further, from Yelp and from Nextag, about some of
the other conduct that Google has engaged in that I would
suggest to you is improper and, to the extent that it has
advanced Google's position in the marketplace, a problem.
Antitrust enforcement can and should play a role. It is, in
fact, I agree with Senator Lee, very important that it play a
role because, if Google continues to expand and control more
and more of the internet, there will be increasing pressure for
more direct government regulation that may be more burdensome,
more difficult. The right answer is appropriate antitrust
enforcement.
Thank you.
Senator Kohl. Thank you, Mr. Barnett.
[The prepared statement of Mr. Barnett appears as a
submission for the record.]
Senator Kohl. Mr. Katz.
STATEMENT OF JEFF KATZ, CHIEF EXECUTIVE OFFICER, NEXTAG, INC.,
SAN MATEO, CALIFORNIA
Mr. Katz. Mr. Chairman and Committee members, thank you for
the opportunity to be here today to discuss what I think are
very important issues to the future of our e-commerce industry.
First, a note about us. Nextag is an internet comparison
shopping company. Tens of thousands of merchants list their
products on our site and our visitors use our content and
features to find the right products and to compare prices and
services for many merchants. About 70 percent of our partners
are small merchants who you've never heard of, like Crafty
Corner in Oshkosh, Wisconsin.
About 30 million shoppers a month in the U.S. use our site,
and we send over $1 billion of sales to our merchant partners
every year. Google has been a principle partner and an
outstanding partner to us for many years, but I am here today
what must be said about the Google of today to ensure that e-
commerce remains competitive and vibrant.
It was 10 years or so ago when I first worked with a small
company that no one had heard of with a funny name from the
world of mathematics: Google. At that time they were the only
company who would let me, as founding CEO of another small
company called Orbitz, advertise. Google's approach to letting
the small thrive through an innovative bidding process that
enabled all to get access to ads and a ranking process that let
all websites be visible based on their relevance to consumers
was brilliant and it was open. It created massive growth in our
digital economy for all.
Back in 2002, this openness and competitive aspect of the
internet was also available to the founders of my company,
Nextag. They began to invest around Google's ideas and
technology and words. They believed when--they believed it when
Google said it would treat others fairly, that natural results
would be unbiased, and that advertisers could not get locked
out of top advertising spots. These approaches let Google stand
out from other search engines back when search was actually
competitive, and Nextag and others built around those ideas.
They believed that Google would live up to its end of the
bargain.
But Google abandoned those core principles when they
started interfering with profit growth. Today, Google doesn't
play fair. Google rigs its results, biasing in favor of Google
Shopping and against competitors like us. Google says that
competition is just one click away, but that's not even the
question. The question is, should Google be able to use its
market power to make it difficult for users to find us? We
believed them when they'd said they'd treat all sites fairly
and we built our business around that, but that is not what
they do.
Our technology means we can help little companies who
cannot possibly invest in the tools or the head-numbing
statistical methods required to be profitably successful with
Google to sell their products, from cameras, to apparel, to
home and garden goods, to jewelry. Try it out sometime. Nextag
will surprise you with what a good site it is.
Consider, for example, a merchant in Hastings, Minnesota,
Boatingstore.com. For about 50 cents, this merchant gets a
customer from Nextag directly to their store's website that is
highly likely to buy the trailer jack that customer was
searching for. For that same price, there is virtually no way
for that merchant to put an ad in a local newspaper or to get
that customer, nor to get that same customer from Google on
their own. It's a good deal for the merchant.
We are pleased to have helped Google grow their business
and we are appreciative they helped us grow ours. Now, however,
they are not innovating. They helped us grow our business, but
they are copping our business after we invested hundreds of
millions of dollars to perfect it, and they are very politely,
deftly, and assuredly moving us aside.
Today, honorable Committee members, when you search for a
product like running shoes or washing machines, Google is not a
search engine anymore. A search engine organizes and presents
information that is hard to find in an unbiased way. But Google
of today doesn't present the information that users want, it
presents the information that Google wants you to see based on
its commercial interests.
The company that dominates the information highway controls
all of the digital billboards and off-ramps, doesn't even tell
the consumer this search favors Google's preferred vendors,
preferred advertisers, and some beneficial results may be
excluded or obscured.
A company that dominates a marketplace at least has the
responsibility to provide fair access. I hope this Committee,
and Google itself, will act to balance the forces that enable
competition to persist. This is a very big deal. We should get
it right and we should make it right.
Mr. Chairman and members of the Committee, thank you very
much for your time and attention.
Senator Kohl. Thank you, Mr. Katz.
[The prepared statement of Mr. Katz appears as a submission
for the record.]
Senator Kohl. Now we'll hear from Mr. Stoppelman.
STATEMENT OF JEREMY STOPPELMAN, CO-FOUNDER AND CHIEF EXECUTIVE
OFFICER, YELP, INC., SAN FRANCISCO, CALIFORNIA
Mr. Stoppelman. Thank you, Mr. Chairman and distinguished
members of the Committee. I appreciate your interest and
invitation to appear today. My name is Jeremy Stoppelman and
I'm the CEO of Yelp, a company I co-founded in 2004 with my
former colleague from PayPal, Russell Simmons.
At Yelp our mission is to connect people with great local
businesses. The site allows people throughout the country to
share detailed and passionate reviews about businesses in their
neighborhood. In turn, businesses that provide great value and
good service are able to establish and promote themselves
online.
Today, Yelp employs more than 800 people throughout the
country. More than 60 million consumers use Yelp every month to
decide how and where to spend their hard-earned money. And on
the flip side, job growth in this country relies on small, but
fast-growing and successful businesses. Yelp helps them reach
new customers by amplifying their positive word-of-mouth
online.
This hearing is important because it examines issues that
go to the heart of innovation: whether new ideas can compete
fairly against expanding monopolies. In our case, I wonder if
we would have been able to start Yelp today given Google's
recent actions.
Let's be clear. Google is no longer in the business of
sending people to the best sources of information on the web.
It now hopes to be a destination site itself for one vertical
market after another, including news, shopping, travel, and now
local business reviews.
It would be one thing if these efforts were conducted on a
level playing field, but the reality is they're not. The
experience in my industry is telling. Google forces review
websites to provide their content for free to benefit Google's
own competing product, not consumers. Google then gives its own
product preferential treatment in Google search results.
Google first began taking our content without permission a
year ago. Despite public and private protests, Google gave the
ultimatum that only a monopolist can give: in order to appear
in web search you must allow us to use your content to compete
against you. As everyone in this room knows, not being in
Google is equivalent to not existing on the internet. We had no
choice.
Recently, Google has inexplicably softened its stance. What
changed? Well, the FTC announced an antitrust investigation,
the State Attorneys General took notice, and this Committee
proposed this hearing. Was this an admission of anti-
competitive conduct? Perhaps, but questionable practices
remain. Websites and Google search results now take a backseat
to Google's own competing products. This is typically
accomplished by calling special attention to Google-owned
properties through larger text, bright graphics, isolated
placement, and pushing objectively ranked websites down the
page.
What we're most concerned about is that Google is no longer
satisfied with pointing users at the best content anywhere on
the web it can be found. Instead, it seems they prefer to send
users to the most profitable content on the web, which is
naturally their own.
Is a consumer--or a small business, for that matter--well
served when Google artificially promotes its own properties,
regardless of merit? This has little to do with helping
consumers get to the best information. It has everything to do
with generating more revenue.
So where is the harm? I live and work in San Francisco,
which sits on the border of Silicon Valley, a place that has
participated in the development of some of the most amazing
products and services over the last few decades, including
Google. Today represents a rare opportunity for the government
to protect innovation. Allowing a search engine with monopoly
market share to exploit and extend its dominance hampers
entrepreneurial activity.
Ensuring open and equal competition will sustain and foster
innovation and job growth. It will also ensure that the price
of internet advertising paid by small businesses will not--will
be set by the market and not solely by a monopolist. When one
company controls the market it ultimately controls consumer
choice.
If competition really were just a click away as Google
suggests, why have they invested so heavily to be the default
choice in web browsers and mobile phones? Clearly they're not
taking any chances. So again, I thank the Committee for its
time and interest, and I look forward to assisting in any way
that I can. Thank you.
Senator Kohl. Thank you, Mr. Stoppelman.
[The prepared statement of Mr. Stoppelman appears as a
submission for the record.]
Senator Kohl. Ms. Creighton.
STATEMENT OF SUSAN A. CREIGHTON, PARTNER, WILSON SONSINI
GOODRICH & ROSATI, PC, WASHINGTON, DC
Ms. Creighton. Thank you, Senator. Before I begin my
remarks, Mr. Schmidt asked me to clarify for the record that
Google Places and Yelp are both applications, or apps--mobile
apps.
Senator Kohl. I'm sorry?
Ms. Creighton. Mr. Schmidt asked me to clarify that both
Places--Google Places and Yelp are mobile apps.
Senator Kohl. Oh. In response to my question?
Ms. Creighton. In response to--that's correct.
Senator Kohl. All right. Thank you.
Ms. Creighton. Thank you, Chairman Kohl, Ranking Member
Lee, and members of the subcommittee.
From 2001 through 2005, I had the privilege of serving as
the Deputy Director, and then Director of the Bureau of
Competition at the Federal Trade Commission, serving as the
chief antitrust enforcer at the FTC. During my tenure we
brought more monopolization cases to put a stop to anti-
consumer conduct than during any comparable period at the FTC,
going back to the late 1970s.
As this strong enforcement record reflects, I firmly
believe there is an important role for government in enforcing
our antitrust laws. The same experience, however, underscored
for me the need for the government to exercise extreme caution
before acting against a company for its day-to-day business
decisions.
These unilateral business decisions are the heart of the
competition and innovation underlying our free market system.
Because of the very real risk of deterring innovation and other
beneficial activities, extraordinary care must be taken to
ensure that government intervention in the market is truly
essential, otherwise, such action is much more likely to harm
consumers than to help them.
As an attorney based in Silicon Valley who has worked with
high-tech companies for more than 20 years, I believe that the
danger of harmful intervention is especially acute in the high-
tech sector. In Silicon Valley, disruptive innovations are the
rule and not the exception, and companies can watch their
market positions disappear overnight.
For example, just 4 years ago My Space had a 72 percent
share in social networking; today it is a fraction of 1
percent. We all know what happened. In the same length of time,
Facebook grew to become the most popular destination on the
internet, with 750 million registered users.
In this sector the only constant has been changed. The pace
of technological innovation has been extraordinary, competition
is robust, and the competitive landscape is constantly
evolving. We have seen the incredible benefits to consumers
that this vibrant competition has delivered, developments that
were nearly unimaginable when I started in Silicon Valley 20
years ago.
Search technologies have been an important part of this
American success story. Indeed, Google's founders changed the
nature of search when they invented the page rank system 13
years ago. Rather than count how many times a key word appears
on a page, page rank is based on the idea that the best way to
rank information is based on consumers' assessment of its
relevance. So, really the core of Google's success has been
that the best search results are the ones that give consumers
what they want.
Today Google continues to innovate to better satisfy those
same users, competing against ever-growing competition, not
just from other general search engines but also from social
networks like Facebook, specialized search engines like Amazon,
Expedia and Yelp, mobile apps for Smart Phones and tablets, and
a host of others. Because it is free and easy to try different
alternatives, users are quick to switch to the sources of
information on the internet that they find most accurate, the
easiest to use, and the most responsive.
Importantly, there is no single right answer to what
information is most responsive to a consumer's question.
Indeed, the essence of the competition among search services is
to make judgments about how best to answer the billions of
queries that they receive every day.
For the government to dictate how Google should make those
judgments, whether to rank the New York Post above the New York
Times or the Washington Post above the Washington Times would
be to turn Google's search service into a regulated utility.
This would inevitably make Google less responsive to its users
and put the company at a disadvantage as it competes every day
to provide the best, fastest, and most responsive answers to
users' requests for information.
It has often been the case in the high-tech industry that
competitors have sought to invoke the antitrust laws to freeze
technology in place to prevent what they believe to be unfair
competition. In the late 1970s, several independent disk drive
manufacturers brought antitrust suits against IBM, arguing that
IBM's physical integration of hard drives with CPUs, a major
innovation, would cut into their sales of disk drives. Courts
recognize that even if IBM's innovations seemed hard on
competitors, it was good for consumers, and in fact this paved
the way for lower costs, better products for consumers, and
ultimately the IBM PC.
The core premise of our antitrust laws for more than 100
years has been that, whereas here there are no artificial
restraints that prevent consumers from being able to make
choices in the marketplace, the best way to benefit and protect
consumers is to allow competition to flourish. If consumers are
free to choose, acting to protect competitors actually has the
effect of short-circuiting competition and innovation and
harming the individuals the law was designed to protect. As the
courts have repeatedly emphasized, the antitrust laws are meant
to protect the competitive process, not competitors. We would
be wise to remember that lesson.
Thank you very much, Chairman.
Senator Kohl. Thank you, Ms. Creighton.
[The prepared statement of Ms. Creighton appears as a
submission for the record.]
Senator Kohl. We'll have a 5-minute round.
Mr. Barnett, do you consider Google a monopoly, or at least
a dominant firm in internet search under antitrust standards as
you know them? Why, if so, and why not, if so?
Mr. Barnett. Thank you, Mr. Chairman. Yes, I consider
Google to be a dominant company with monopoly power, at least
in search and search advertising, likely in other markets, its
mobile search, mobile advertising, mobile operating systems,
it's quickly moving in that direction, maps, and a number of
other areas. And I think that they are--have monopoly power
both because there are expert agencies who have looked into
this and concluded that, but I take the words of Mr. Schmidt:
there are huge barriers to entry to getting into search. They
are a dominant company there because they got there first, they
have a great algorithm, and it is very difficult, if not
impossible, for anybody else to catch up with them.
Senator Kohl. If Google, Mr. Barnett, is a monopoly or
dominant, what are the consequences, in your opinion? Is there
conduct that it may not engage in in order to maintain its
market dominance?
Mr. Barnett. There is no doubt that a dominant company with
monopoly power can harm competition in a way that a company
without that monopoly power cannot. That puts a special
responsibility on the company to engage in fair competition on
the merits and not to exclude competitors. I'll give you a
specific example, because I was, frankly, somewhat offended by
one of the things that Chairman Schmidt said. He talked about
the issue of scraping content from Yelp and putting it on a
Places page. The way he described it was, well, we did that, we
thought it would be good, and then we got a letter and we took
it down. That is not what happened.
My client, Trip Advisor, which has 45 million reviews on
it, had a very similar problem where its content, its user
reviews were being placed on Places and the CEO of Trip Advisor
went to Google last year and said we don't want to appear, just
take our content off Places and Google said no. The only way we
will take that down is if you will never appear anywhere in our
dominant search engine results.
That was a coercive tactic that was designed to enable
Google to take their content, use it against them. I think that
is exactly the type of behavior that a dominant company should
not be able to engage in, and I completely agree with Mr.
Stoppelman. The only reason that changed at all, because they
said no last year, was this year, after the FTC opened up an
investigation, there were presentations made to the National
State Attorneys General, and within weeks if not days, Google
started to back down.
Senator Kohl. Ms. Creighton, what's your view? If Google is
considered to be a monopoly or a dominant firm in internet
search, is there conduct that it may not engage in in order to
maintain its market dominance?
Ms. Creighton. Senator, respectfully, I do not believe that
Google has monopoly power, and I'd like to explain why. So what
we're looking for in the antitrust laws in terms of whether or
not a company is a monopoly is really whether it has monopoly
power.
The way we look at that is whether or not the company, if
it were to raise price or exclude competitors, is there
something that would cause consumers to be unable to switch and
so the company basically can get away with that? We sometimes
can use market shares as an indicia of whether or not there's
monopoly power, but the real question is, is there this ability
to foreclose competition or to raise prices?
When I was at the FTC, what I would be looking for was not
only very high market share as sustained over a very long
period of time, usually in the 80s, high 80s, I'd also be
looking for it to have been over many years and I'd be looking
for indication the consumers--there's some structural problem
that causes consumers to be unable to switch.
Here, instead, what we actually see--and I thought Senator
Klobuchar--I'm sorry she's not here, but she--her sort of
testing of how Google and Bing ranked her name while she did
the quick search just while we were here is really the key to
why, in my view, Google does not have monopoly power. Each of
you right now can test whether or not you like Google's
results, and if you don't like them it's free and instantaneous
to try someone else's results.
So if you were to enter Yelp and Google didn't return Yelp
at the top of the search results, I doubt you'd ever come back
to Google again, you'd be so mad. So it's--when we're--when
we're looking for whether or not a company has monopoly power,
I--you know, respectfully, as an antitrust enforcer, and I'm
sort of wearing an antitrust enforcer has as opposed to my sort
of, you know, representing Google hat, I wouldn't say that you
should trust Google. I think the question is whether you can
trust the market or whether there are some kinds of impediments
to the way that the market is working that cause consumers to
be unable to switch.
Senator Kohl. Thank you.
Senator Lee.
Senator Lee. Thank you, Mr. Chairman.
I have a couple of questions for Mr. Barnett. Sir, in your
written testimony you make a statement that I find compelling.
You say, ``Google already possesses unprecedented power to
steer users and to stifle competition. If for some reason
antitrust enforcement is not able to address these concerns,
there will be pressure to reign in Google's power through more
direct government regulation that is likely to be more rigid
and burdensome and that itself would pose a threat to
innovation and economic growth on the internet.''
Can you tell us more about what you see as a threat, that
without Google taking action to resolve these antitrust issues
may cause significant elements of the internet to become
subject to intrusive regulation by government?
Mr. Barnett. Thank you, Senator. You know, one of the
experiences I had when I was the Assistant Attorney General was
talking with a number of other jurisdictions, such as former
Eastern bloc countries, countries in Asia, China in particular,
about moving from a centrally planned economy to a market-based
economy.
One of the tools for doing that was to introduce an
antitrust regime. You don't need the government to dictate
everything that happens. You can let the market work subject to
the antitrust rules. That's part of the way we got to
deregulation of airlines, deregulation of trucking, a lot of
deregulation in the country which has produced enormous
benefits.
It works the other way, too. If Google continues to expand
and is dominant not only in search and search advertising but
in all these other areas and continues to control more and more
of these search-dependent products and services, you will see
pressure--there is already pressure to give the FCC authority
to regulate the internet. Then you could have people, not
market participants but bureaucrats, with respect, making
decisions that I think can be harmful.
Senator Lee. So it sounds like you see that pressure
building rather than abating, unless there's some voluntary
change in action. It's significant to me because my real
interest as a free market conservative Republican is in seeing
that actors like Google take voluntary action so that there's
no need for antitrust enforcement in the first place, and
certainly so that there's no place for, or cause for, or push
for intrusive government regulation on the internet, which up
to this point has remained a relatively government-free trade
zone.
What can Google do, in your opinion, on a voluntary basis
to resolve these concerns so as to forestall that kind of
unfortunate result?
Mr. Barnett. Well, the first thing they can do is live up
to Chairman Schmidt's words and ``get it.'' I mean, they can
acknowledge that they are a dominant company and they have a
special responsibility. The second thing they can do, is they
can act on that. They can ensure that the way that they display
the search results, particularly non-algorithmic search
results, are clearly labeled and not misleading or deceptive to
consumers. They can avoid and refrain from using content from
other sites without their permission or authorization.
They can ensure that their algorithm really is based on
objective criteria and not penalizing sites because they're
competitors. If they take steps like that, I think they would
go a long ways toward gaining credibility and, as you all were
discussing, give people who were trusting, but verifying,
comfort that they should be trusted.
Senator Lee. And some basis for verification.
Mr. Barnett. Yes.
Senator Lee. We learned from Robert Bork that the animating
principle of antitrust justice ought to be consumer welfare. My
principal concern with Google's current practices is that they
may not, and may not in the future, result in harm to the
consumer. They may not in the future take those actions that
will forestall this harm to the consumer.
Can you explain to the Committee the particular ways in
which you think that Google's actions may cause harm to the
consumer?
Mr. Barnett. Two examples. First of all, remember, they are
an advertising company. They made $30 billion last year in
advertising. Given that they're dominant in advertising, a good
portion of that is already monopoly rents. To the extent that
they're maintaining or enhancing that power, that's money that
advertisers have to spend that ultimately consumers pay for
because it's going to flow through in the cost of the goods and
services you buy.
The more fundamental problem is, if Google is the only
company that is innovating in these important areas, we lose
the benefit of competition in innovation, and that's really
what's going to drive and promote consumer welfare in the
longer run. That's why preserving competition here is so
critical, so that companies like Nextag and Yelp have the
environment and the circumstances where they're willing to make
the investment, take the risk, and develop the next great
application.
Senator Lee. Thank you, Mr. Barnett.
Mr. Chairman?
Senator Kohl. Mr. Franken.
Senator Franken. Thank you, Mr. Chairman.
Mr. Stoppelman, I'd like to ask you and Mr. Katz a
question, a hypothetical. Let's assume Nextag and Yelp were not
in existence today. Would either of you attempt a launch of
your company in today's market, given the competition in local
search and product search?
Mr. Stoppelman. As I laid out, I personally wouldn't. I
wouldn't. I would find something else to do. When we began,
there was really actually a level playing field in our space,
in the local business review space. I mean, I started the
company because I actually that summer had done a search
looking for a doctor in San Francisco, and in fact found no
relevant information. I wanted to know, who's a great doctor,
not just, you know, what's the nearest one, which one, you
know, accepts my insurance.
So that's why we started the business. And as it got going,
we found that traffic was coming in and it was bringing more
users to write more reviews. Now with Google taking up so much
of the real estate, there's no way I would start fresh. I mean,
fortunately we've been working for 7 years and we've got a
brand and a lot of traction and so we're not going anywhere,
but absolutely I wouldn't even consider it these days.
Senator Franken. Mr. Katz.
Mr. Katz. I don't think we could do it. Our business
requires merchants to want to participate in Nextag because we
have a lot of shoppers on our site. Sixty-five percent of our
shoppers come to us from Google today either through natural
search or paid search, so we simply couldn't do it with the
Google that exists today, where roughly the top half of the
page is dominated by Google-related product interests and the
right half of the page where paid advertisers compete is
beginning to be dominated by unique ad placements which
competitors such as ourselves can't even purchase. It would be
very difficult. I think it would be impossible to get the
merchants to participate in Nextag today.
Senator Franken. Thank you.
Mr. Stoppelman, I was a little confused by Mr. Schmidt's
testimony regarding the history between your two companies. Was
his depiction correct?
Mr. Stoppelman. No. I'd be happy to share the time line
quickly, if that would be helpful.
Senator Franken. Yes, sure, if you could do it quick.
Mr. Stoppelman. Sure. So in 2005, Google came to us
looking--looking at our content and saying they wanted to
include it in a page, as Chairman Schmidt mentioned, and we
initially said, OK, we'll try it out, maybe we'll get traffic
from it. And very quickly we realized that it wasn't helping,
it wasn't sending us a lot of traffic, and in fact it was
creating a potential competitor, and so we dropped out of that.
From 2007 to 2009, we sort of lived on our own and we did
our thing and Google tried to do theirs. Then there was rumors
of a potential attempted acquisition. We decided to stay
independent, and immediately after that our content, which had
been out of Google's Places property, or local property,
whatever you wanted to call it, suddenly found its way back in
without permission.
So before there was actually a written, signed license for
that content, and then in 2010 it was just there. We
immediately registered our complaint and, you know, there was a
lot of back-and-forth dialog--we understand your concerns, we
understand your concerns--but in the end nothing happened until
finally there was some interest on it from the government side
and Google----
Senator Franken. OK. So this is scraping, right? Is that
the definition of scraping?
Mr. Stoppelman. Yes. In 2010 they essentially took our
information that they were using for web search----
Senator Franken. Right.
Mr. Stoppelman [continuing]. And they go out and they
pulled in all the web pages from the internet, including ours.
They took that information from that core business, their
dominant web search business, and used it in a totally separate
property, Google Places.
Senator Franken. Right.
And speaking of Google Places, Ms. Creighton, when I asked
Mr. Schmidt whether it was an app he said it wasn't, now he's
corrected himself.
Ms. Creighton. That's correct.
Senator Franken. You said a monopoly is something that is
over 80 percent. But on mobile, isn't the concentration 97
percent for Google?
Ms. Creighton. Senator, with that number--there's a couple
of big problems with that number.
Senator Franken. You brought up the number.
Ms. Creighton. I don't remember talking about mobile, but I
think----
Senator Franken. No, you didn't bring--say--no, the number
was 80 percent.
Ms. Creighton. Oh, I'm sorry. What that excludes is that
most consumers today, and if you have Smart Phones you may find
this is your own experience, that number completely excludes
apps, which is how most people find information on their phones
today. So if--so first you have to----
Senator Franken. But did Google spend money to be the
default search engine on Apple. Did it spend money on that?
Ms. Creighton. So Google and Bing, and I'm not sure whether
or not Yahoo, all competed with Apple to be the--to be the
search provider on the I-Phone and the I-Pad. In fact, about
two-thirds of that number that you cited actually comes from
the fact that Google prevailed in that contract. But Senator,
if we step back and think about----
Senator Franken. Could you answer my question?
Ms. Creighton. Did Google pay? The answer is----
Senator Franken. Did Google pay Apple to be the default
search engine on mobile?
Ms. Creighton. Google certainly entered into--Google
certainly entered into a deal with Apple and prevailed against
Bing. But the question is, the----
Senator Franken. Did they pay money in that deal?
Ms. Creighton. I--I don't know.
Senator Franken. You don't know. Would it surprise you if
they did?
Ms. Creighton. It would not surprise me if there was a
revenue----
Senator Franken. And why do you think they would pay money
for something that wasn't worth that much, or worth anything?
Ms. Creighton. Senator, what I was--first, it was a
default, not an exclusive. So if you go on your I-Phone, I
think it'll probably take you about 20 seconds to download
another app or a different search engine. But the real question
I think from a competition perspective is----
Senator Franken. OK. Keep going. I'm out of my time, but
you continue as long as you would like. I'm sorry. Forgive me.
Ms. Creighton. Is--is whether--is--we actually want Apple
to be able to have companies like Bing and Google competing to
be the best search engine. There's no reason to think that
Apple didn't pick that based on what they thought was the best
product. Now, having picked Google, Bing and Yahoo are going to
compete that much harder the next time. So when you have that
kind of a contestable market, that you have someone who's a
stand-in for consumers, because Apple is not going to take the
worst search engine.
Senator Franken. Thank you.
Ms. Creighton. Thank you, Senator.
Senator Franken. Thank you. And I apologize for
interrupting.
Mr. Chairman?
Senator Kohl. Senator Blumenthal.
Senator Blumenthal. Thank you, Mr. Chairman.
Has Google ever scraped or co-opted content?
Ms. Creighton. Senator, Google has--if we--I don't know if
it shows on--on the--Mr. Barnett's chart or not, but what--if
you run a Google search what you'll typically see is there will
be a line or two that--that tells you something about the site.
The purpose of run--of having that line----
Senator Blumenthal. Well, you know what I mean when I say
co-opted or scraped content.
Ms. Creighton. Respectfully, Senator, what I was trying to
get to is the purpose of that is to enable you as a consumer to
tell whether that's a site you want to click through. So Google
has not ever unlawfully taken content that is not permitted. It
has----
Senator Blumenthal. Well, let's leave out the unlawfully
part. Has it ever scraped or co-opted content?
Ms. Creighton. It----
Senator Blumenthal. You've just heard Mr. Stoppelman's
testimony here, it's under oath, and it's really a question of
whether you deny his testimony.
Ms. Creighton. Senator, to the best of my knowledge, what
Google has done and what Mr. Stoppelman is describing is, he
did not--he wanted to have--Google's experience has been that
people like having a line or two written about them because
that's what drives traffic to their sites. What Mr. Stoppelman
was talking about is micromanaging whether or not Google shows
those results, the natural search results, but not in other
parts of its site, and was asking for Google to engage in some
extra engineering to be able to make that possible.
Senator Blumenthal. Let me move on to your contention, as I
understand it, that Google is not dominant to the point that it
has a responsibility under the Sherman Act or other antitrust
laws, is that correct?
Ms. Creighton. What I--I think what Mr. Schmidt said was--
I'm not trying to address the question of what Google thinks or
its responsibilities. I was just addressing the question of
whether or not, under the antitrust laws, I believe that it has
monopoly power, and the answer is that I do not believe that it
has monopoly power.
Senator Blumenthal. Because its share of internet searches
and advertising is not in excess of 80 percent?
Ms. Creighton. To begin with, Senator, because I don't
believe that the market is properly limited to general search--
to general search engines, so----
Senator Blumenthal. You think that the market definition--
--
Ms. Creighton. Is too narrow.
Senator Blumenthal [continuing]. Should be beyond search.
Ms. Creighton. I believe that it should be beyond general
search. So, for example, when I was at the----
Senator Blumenthal. So let's say a court were to disagree
with you and found liability and also found co-opting,
scraping, whatever other anti-competitive allegations have been
made. What would your remedy be? What would you recommend to
the court?
Ms. Creighton. So I think it would depend on what the
alleged wrongdoing was that the court found, Senator.
Senator Blumenthal. Well, anti-competitive conduct, such as
excluding competing sites or placing them lower on the search
analysis, or co-opting, or scraping, whatever term you want to
use. Would it be injunctive relief against those practices or
would you advise some kind of structural remedy?
Ms. Creighton. Senator, I'm afraid that that probably has
so many hypotheticals in it, I wouldn't be able to answer.
Senator Blumenthal. Well, let me ask you this.
Ms. Creighton. But let me give you--let me give you----
Senator Blumenthal. In order to avoid a continuing
potential series of government interventions, which none of us
really would favor as a first choice, and again I in no way
prejudge whether there should be, but what would you suggest in
the way of voluntary action by Google, or would you simply say
that Google should proceed with its current course of action
and change it in no way?
Ms. Creighton. So, Senator, I think--so for example, I
represented Netscape back many years ago when it was
challenging some of Microsoft's conduct, some of the conduct
that was at issue there. And this really gets to the question
of, are there impediments to the ability of consumers to
choose. So if someone found, for example, that as Microsoft did
there, that Microsoft was intimidating OEMs from being able to
offer rival product so that it never got to market, then I
would want to have relief that went to those provisions that
were preventing consumer choice.
Senator Blumenthal. And so far as monopoly power is
concerned, you don't think it's relevant that its nearest
competitor has less than 30 percent, is losing money and
consumers--I understand the contention that competition is only
a click away, but there are very strong barriers to entry, are
there not?
Ms. Creighton. Senator, I think, first--so Google's--I
think if you just limited it to the most narrow market you'd
say it's at 65 percent and declining. The fact that it's
declining is a big red flag to a finding of monopoly power.
So--but even beyond that, if you step back and think--one of
the markets that I had to look at when I was at the FTC was
whether or not general department stores constitute a separate
market. That was an empirical question. Did those general
department stores compete with the boutiques in the mall?
So, for example--and we concluded that in fact--even though
there were only two that looked the same, there was only a
Nordstrom's and a Macy's, that in fact what was constraining
price were all those boutiques on the mall. So, for example,
Senator, I think--if you think about, where would you go if you
were looking to buy a product, I'd be really surprised if you
didn't think about going to Amazon. Amazon is a special search
engine that actually has three times the number of product
searches conducted on it that Google does.
Similarly, I think when--if you talked to local
advertisers, it's interesting that Mr. Barnett used the example
of Milwaukee doctors, because what local advertisers tell you
today is the number-one place you have to be is Facebook.
That's where most local advertising is happening. And I think
Mr. Katz actually even mentioned that the platforms of the
future for local--for shopping are going to be Facebook and
Twitter. So when I think you look at, what is the relevant
market and what are the constraints on Google, you don't want
to just look at, what are the other general search engines. You
want to look at whether or not there are other competitors like
the boutiques in the mall that are constraining it.
Senator Blumenthal. I very much appreciate your answers,
and my time has expired. I may have some more in writing,
particularly as to the market definition and your analysis. But
I appreciate your being here today, and thank you for your
answers.
Ms. Creighton. Thank you.
Senator Kohl. One more round of 3 minutes.
Mr. Katz, according to Google consumers can go directly to
Nextag simply by entering www.nextag.com into their web
browser, so why should it matter how you're being treated by
Google's search engine?
Mr. Katz. Well, when people shop, and this is something
we've studied and they've studied, what people do is they type
in ``washing machine.'' They don't type in Amazon or Nextag,
they don't type in Google Products, they type in ``washing
machine.'' From there, the rest takes place.
When you type in ``washing machine'' the Google--first half
of the Google page begins to lay out and, as we've discussed,
begins to preference advertisers or products that have a
preferential or preferential advertising relationship with
Google. If they did type in Nextag.com, first we would bless
the Lord above, and then they would go directly to Nextag.com.
Senator Kohl. What would happen to your business in the
United States if you no longer appeared near the top of
Google's search results?
Mr. Katz. About 65 percent of our search referrals come
through Google today, so our business would be severely
impaired. We are probably one of the most successful internet
companies in the United States that nobody has ever heard of
because we have really perfected the marketing and use of the
Google platform, as Eric mentioned it earlier. The down side of
that is, people haven't heard of us. So if we could not utilize
that platform, which I've described I think is happening, we've
certainly seen the benefits, that would severely impair our
business.
Senator Kohl. Mr. Stoppelman, what would happen to your
business if you lost access?
Mr. Stoppelman. Thank you, Mr. Chairman. About 75 percent--
I believe that's the right number--of our traffic overall is
sourced through Google one way or another. About 50 percent of
that is traffic coming for people sort of generally searching,
starting their search on Google, and eventually finding their
way to Yelp. And then the other 25 percent of that 75 percent
number is people that are qualifying, they want to go to go to
Yelp so they're adding that key word in one way or another. So,
needless to say, if we were not in Google it would be
completely devastating to the business.
Senator Kohl. All right.
Ms. Creighton, would you argue that it is completely
permissible under antitrust law for Google to favor its own
products and services on its results page?
Ms. Creighton. Senator, I think the question is whether or
not Google has the ability to provide the answers that it--that
consumers want, so I think what Google in fact does is it--it
is constrained because consumers can switch away to be
providing the answer it thinks is best for consumers, and it's
not doing that for charitable reason, it's doing that because
unless it does people are going to be going somewhere else.
So if Google thinks that it has the best answer, then it
will be displaying that. But if consumers aren't picking on
it--picking that--that site, then it's going to drift down over
time because Google is going to be ranking higher the things
that consumers are actually clicking on.
Senator Kohl. All right.
Senator Lee.
Senator Lee. Thank you, Mr. Chairman. I just have a couple
of questions I wanted to ask of Mr. Stoppelman and Mr. Katz. As
a prelude to that, I want to reemphasize that I'm a firm
believer in the free market. I'm also an almost life-long fan
of Robert Bork. In high school I once drove across town just to
hear him speak. It therefore shouldn't be surprising I'm
focused on consumer welfare. That was always his emphasis in
antitrust law, was consumer welfare.
My question to both of you is this: what, in your view,
does Google currently do that most harms consumers, and what
can Google do by way of voluntary action to help alleviate any
problems that they might have caused in that regard, starting
with you, Mr. Stoppelman.
Mr. Stoppelman. Yes. Thank you, Mr. Senator.
So what can Google do? I think the key would be separating
out distribution from its own properties. For us that's--that's
the most important issue. Your chart, I think, very
definitively showed that Google is preferencing itself on a
regular basis over a wide variety of queries, and often Yelp
has the best content when users are doing local searches. And
if it's not surfacing that toward the top but instead is taking
out most of the real estate with its own property that it only
recently decided, you know, was the most relevant, than
that's--that's a big problem.
Senator Lee. Mr. Katz.
Mr. Katz. I would say, you know, the guiding principle is
really a level playing field. If that were happening I wouldn't
be here today. There is a few things that Google could address
if they really wanted to. I would argue its in their interests.
They clearly don't agree with that. One simple premise. If
they're going to create a placement or a link anywhere on their
page, it should be Nextag's easy ability, without changing our
business, without becoming something we aren't, that we can get
access to that link or that add unit. Today that's not the case
for roughly the top half of the page, and for the best ad unit
they sell on the page, we can't even compete for it.
Second, they would label more clearly. Those units that you
pulled out that are top dead center on the page, those aren't
labeled as commercially preferential to Google. Not everybody
can be there and consumers really don't know what's behind the
scenes. They'll never find the benefits of Nextag or another
site because the first half of the page is where everything
happens. And last, I think back, I just emphasized level
playing field, level playing field, level playing field. Simple
principle. If they get it, they make it happen.
Senator Lee. Thank you both very much.
Thank you, Mr. Chairman.
Senator Kohl. Thank you.
Senator Franken.
Senator Franken. Thank you, Mr. Chairman.
Ms. Creighton, you worked very closely on the Microsoft
case over 10 years ago. There are many parallels between that
case and what Google is doing today. You may not agree with
that, but I think you would agree that it isn't enough for
Google to just say trust us. In fact, I think you said that.
Ms. Creighton. Yes.
Senator Franken. They need to explain to businesses and
consumers what they are doing and why. In the Microsoft case, a
technical Committee was created to help monitor and enforce the
obligations in the final court order. To be clear, DOJ hasn't
filed suit against Google, and I'm not suggesting that they
should, but I do see some merit in Google taking the initiative
to create a Committee of technologists and other small
businesses that could review algorithm tweaks and help provide
some assurances that Google is treating everyone equally. What
do you think of that idea?
Ms. Creighton. Senator, I'd have to defer to the company in
terms of whether that's a good business idea. As a former
antitrust enforcer and an antitrust attorney, I'd be extremely
concerned about--that--that's just another word for regulation.
So, you know, I don't know if you had a chance to see Mr.
Barnett's--I think it's in his written testimony. He had to
search for Milwaukee doctors and he shows a big Places page at
the top on the Google search results. I'd encourage you to run
that same search on Yahoo. It looks exactly the same.
Now, it looks different on--and Bing, and I think the real
question that we have is whether or not--there's research that
both Microsoft and Google have done, and it's public, that 58
percent of all users actually want an answer returned. And one
of the things you've probably heard, Microsoft advertises it
everywhere, that Google only returns links, Microsoft returns
answers. So I think really the question we have to ask is
whether or not we want to say that Google can't compete or it's
going to have to go through a regulatory Committee before it
can be responsive to that demand. The consumer----
Senator Franken. I guess I was suggesting something
voluntary.
Ms. Creighton. I think, Senator, that Google--because
consumers can switch, their incentive is to do exactly what
you're describing today. They have no incentive. They have an
incentive----
Senator Franken. To do what I just described today, or
what?
Ms. Creighton. They have an incentive to be--to be
returning what consumers want, not to be biased in favor of
their own content. So, for example, I think there may be a
misunderstanding as to what happens, for example, if you click
on one of those Places pages. So Google is actually--is--is
deflecting advertising revenue away from those pink ads onto a
Places page, but that Places page is itself a set of natural
search results.
Where consumers go on that Places, two-thirds of the time
they actually click through to the website of the company that
they're searching for, another quarter of the time they go to
review sites. So, they only click 7 percent of the time on the
actual Google ad, so Google is actually losing money with that
in the short term. But the long term, the reason it does that,
is it's competing with Yahoo, and Bing, and everyone else
because it's trying to provide--the way you get a consumer back
and you make more money over the long term is by providing
those answers.
Senator Franken. OK. So you're saying that doing this
voluntarily, to maybe----
Ms. Creighton. Is--is what--is what they do today.
Senator Franken. No. I said----
Ms. Creighton. I'm sorry
Senator Franken [continuing]. That they would do--I'm sorry
to go over time, but there's just some misunderstanding here,
Mr. Chairman. To create a technical Committee to review what
they do, is what the Microsoft case did, which you worked on.
That's what I was----
Ms. Creighton. Yes, Senator. I--what I--I'm sorry. What I
meant to say was that they actually, as Mr. Schmidt I think
explained a little bit, they actually run live tests with us as
their guinea pigs, like 1 percent of the traffic. They'll do
side-by-sides: do you like this, or like this? And so I think--
I think that I'm not sure I understand how----
Senator Franken. OK. You worked on Microsoft and you know--
--
Ms. Creighton. Yes.
Senator Franken [continuing]. That they--as part of the
settlement to comply with the settlement, that they formed a
technical Committee to review this. You said that would be
regulation and I said, what if they did it voluntarily? Then
after that we kind of lost the strain of what we were talking
about, I think.
Ms. Creighton. I'm sorry, Senator. I'm sure that was my
confusion. Let me try again. In short, I think Google already
changes its algorithm 500 times a year. I think a technical
Committee would be too slow to be able to keep up with the
changes in the market.
Senator Franken. Thank you.
Thank you, Mr. Chairman.
Senator Kohl. Senator Blumenthal.
Senator Blumenthal. Thank you, Mr. Chairman.
Just in fairness to Mr. Schmidt, I understood his testimony
actually to be that he felt Google did have a special
responsibility by virtue of its size and I want to just express
my appreciation for his acknowledgement, and I hope also his
receptivity to suggestions to do better, which I think would
distinguish him from the experience in Microsoft.
Mr. Barnett, you have had very significant antitrust
enforcement experience comparable to Ms. Creighton's--yours at
the Department of Justice as head of the Antitrust Division.
And I wonder if you could tell us whether you think--and you
have no responsibility to answer this question, but if you were
in that position now whether you would bring a case, or at
least begin an investigation.
Mr. Barnett. Thank you, Senator. I guess I would start by
saying, you know, in that regard Ms. Creighton referred to her
background. I don't think anyone would accuse me of having been
overly aggressive or prematurely pulling the trigger on
bringing monopolization cases, but there was a case that we
looked at.
And while I won't go into the details, that had to do with
Google, who wanted to enter into a transaction with Yahoo!
Where the Department looked specifically at the search and paid
search advertising markets and Google abandoned that
transaction in the face of a representation from the Department
that we were about to file a suit to challenge it in court. So
I can tell you that, based on my experience, there's at least
one instance where I think they had crossed the line.
Earlier this year they acquired ITA, which is an online
travel search asset. That's another issue which I won't go
into, but I will say that I think the Department was right to
challenge that, which they did. In this context I am more than
willing to say that I would certainly open an investigation,
and indeed that's--that's a really important point here. A lot
of the hard questions--many of the things we're talking about
having to do with deceptive display and all that have nothing
to do with the search algorithm, but there have been a lot of
questions raised about, what does Google do with its search
algorithm?
To the best of my knowledge, nobody has ever actually--
nobody outside Google has ever actually looked at it to
determine what's going on. And I'm not talking about posting
the algorithm on the internet. I'm talking about, in a
confidential investigation, enabling a responsible antitrust
enforcement agency to gather the facts. And I would certainly
want to gather the facts, and based on what I've seen, I would
be very concerned that there is harm to consumers.
Senator Blumenthal. I want to thank you for your testimony.
I invite any of the witnesses to comment on the market
analysis, market definition, related questions, but most
especially on the question that has been raised by myself and
others as to what Google might voluntarily do, because
certainly enforcement actions, as both you and Ms. Creighton
know, are costly, time consuming, cumbersome, blunt, and
inexact instruments of protecting competition, and far better
to have voluntary actions that can avoid even the appearance or
complaints about antitrust violations. And again, to emphasize,
I have formed no conclusions myself, whatever that's worth,
about the merits or the issues of fact and law here. So, thank
you for being here and thank you for sharing your perspectives
and views.
Senator Kohl. Thank you, Senator Blumenthal.
Today's hearing demonstrates the importance of vibrant and
open competition on the internet. The actions of Google as a
dominant internet search firm has profound effects on the
ability of businesses to prosper and to compete, as well as on
the ability of consumers to find the best products and services
at the best prices.
We need to continue to consider whether Google merely does
its best to serve consumers' interests as it claims, or biases
its search results so as to distort competition in its favor as
its critics argue. We will continue to examine these issues. We
very much appreciate your being here. You have added much
information and light to this very important topic, and this
hearing is now closed.
[Whereupon, at 4:50 p.m. the hearing was concluded.]
[Questions and answers and submissions for the record
follow.]
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